Legislature(2003 - 2004)
04/03/2003 01:35 PM Senate TRA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 112-MOTOR FUEL TAX:GOVT AGENCY REFUNDS
SENATOR WAGONER moved to adopt a proposed committee substitute
(CS) to SB 112, labeled version Q.
CHAIR COWDERY announced that without objection, the motion
carried.
COMMISSIONER BILL CORBUS, Department of Revenue, told members
that Robin Wilson, revenue auditor in the Tax Division, was also
available to answer questions via teleconference. He commented:
Given the low tax rate on highway motor fuel in Alaska
in comparison with other states, I urge you to agree
that this legislation is a viable method of generating
critically needed revenue in the short term until
Alaskans are able to realize long-term revenues from
resource development.
Why is this legislation necessary? SB 112 is a very
necessary element of the Governor's overall budget and
investment plan for fiscal year 2004. Governor
Murkowski's primary mission is to build a robust
growing economy and generate sufficient state revenues
to fund programs and services that Alaskans need and
expect. Passage of SB 112 will help ensure increased
state revenues and may prevent the elimination or
diminution of important programs and services.
What this legislation will accomplish - SB 112 will
generate approximately 37.7 million in fiscal year
'04. For the full fiscal year, this legislation will
generate 41.1 million. This translates to over $3
million to the state per month. It is time to increase
the highway motor fuel tax rate. The current highway
motor fuel tax rate in Alaska set 33 years ago in 1970
is 8 cents per gallon. Even at 20 cents per gallon
with the passage of this legislation, Alaska will
still be in the middle nationwide in excise tax rates
on highway motor fuel. 22 other states have excise tax
rates on highway motor fuel above 20 cents per gallon
and many of those states add other taxes to highway
motor fuel. In fact, 35 states have combined state and
local motor fuel taxes higher than 20 cents per
gallon, ranging from 21 cents per gallon to 38.7 cents
per gallon.
To provide a perspective, according to the Federation
of Tax Administrators of February 2002, the State of
Washington highway motor fuel tax is approximately 23
cents per gallon and the national average of state and
local gasoline tax is 22.9 cents per gallon.
This legislation will bring Alaska's highway motor
fuel tax closer to the national average but still stay
below the national average of nearly 23 cents per
gallon. This will be the first increase in Alaska's
highway motor fuel tax in 33 years. This is an
essential component of the Governor's spending and
investment plan for Alaska he recently submitted to
you for your consideration. The Department of Revenue
can and will efficiently administer the increased
motor fuel tax as discussed in the department's fiscal
note. I urge and appreciate your serious consideration
of this legislation and ask you to pass it out of this
committee today with your support for its enactment
this session.
COMMISSIONER CORBUS then said that Ms. Wilson could provide
technical information pertaining to the administration of the
motor fuel tax in general and about SB 112.
CHAIR COWDERY noted that Commissioner Corbus had a time
constraint so he asked members to address questions to him at
this time.
SENATOR OLSON said that Commissioner Corbus stated that this tax
is necessary until revenues are realized from resource
development and asked if this is a temporary tax until that
time.
COMMISSIONER CORBUS said at this juncture there is no plan to
reduce the tax that he is aware of. It is a permanent tax.
CHAIR COWDERY pointed out that the state did away with its
income tax when it had extra revenue so hopefully the state will
have enough revenue in the future to reduce this tax.
SENATOR LINCOLN said that the reasons given for the increase in
the highway motor fuel tax are highway maintenance and new
highway development. She asked how the commissioner is proposing
to secure this tax for those purposes since funds cannot be
dedicated.
COMMISSIONER CORBUS said there is no straightforward answer to
that question: the tax revenues will be deposited into the
general fund. The Governor has stated his intent that the tax
revenue is to be used to help pay for maintenance of the road
system.
SENATOR LINCOLN said she does not want the public to be deceived
into believing that this tax will go into a dedicated fund. She
then noted the committee substitute will remove the motor fuel
tax exemption of the Alaska Railroad Corporation (ARRC) and
asked the administration's position on doing that.
COMMISSIONER CORBUS said the administration has not taken a
position on the proposal at this time.
SENATOR THERRIAULT asked how much revenue the existing 8 cent
per gallon fuel tax generates.
COMMISSIONER CORBUS deferred to Ms. Wilson.
MS. ROBIN WILSON, Tax Division Auditor, Department of Revenue,
replied that the total revenue generated from the motor fuel tax
is approximately $37 million at this time but that also includes
aviation fuel and marine fuel. She offered to get members the
exact number for highway vehicles after the meeting.
SENATOR THERRIAULT asked what the total revenues would be with
the proposed increase.
COMMISSIONER CORBUS said for fiscal year '04 the amount will be
$37 million, but for a full year the increase should be $41
million.
SENATOR THERRIAULT asked what the total current maintenance and
operating costs are for the road system.
COMMISSIONER CORBUS said he would have to defer to the
Department of Transportation and Public Facilities (DOTPF) for
an answer.
SENATOR LINCOLN asked how, at eight cents per gallon, the
revenues are $37 million; yet increasing the tax by another 12
cents per gallon will bring it to $41 million.
SENATOR THERRIAULT explained that the $41 million is from the 12
cent per gallon increase so it is in addition to the $37
million.
SENATOR LINCOLN pointed out that if at eight cents a gallon the
revenue is $37 million, an increase of 1.5 times would amount to
about $$60 million.
SENATOR THERRIAULT explained that a portion of the $37 million
collected is for aviation and marine fuel, which will not have a
12-cent per gallon increase.
SENATOR LINCOLN asked how much the additional 12-cent tax would
raise, if the $37 million comes from highway, aviation and
marine fuel taxes.
SENATOR THERRIAULT said that is the $41 million. He stated the
fuel tax rate increase would not apply to aviation or marine
fuel.
COMMISSIONER CORBUS offered to get back to committee members
with a detailed breakdown of the existing revenues received from
all motor fuel taxes.
MS. WILSON interjected to say she located those numbers and
stated:
Of the 37 million, approximately 27 million is used on
the highway and then there's about six million marine
fuel tax and another four or so on aviation. And so
the numbers that Commissioner Corbus gave you would be
the increase over and above that.
SENATOR THERRIAULT asked if once the tax is increased to 20
cents, the total revenue raised on a full year's worth of
collections from motor fuel for highway vehicles will equal $41
million plus $27 million.
COMMISSIONER CORBUS said that is his understanding.
CHAIR COWDERY asked Mr. Schmitz to explain the changes made in
the committee substitute.
MR. RICHARD SCHMITZ, staff to Senator Cowdery, told members the
basic change between the original bill and version Q is that
version Q requires Alaska Railroad Corporation (ARRC) to
contribute funds into the fuel tax. After doing some research,
he found out how much diesel fuel the railroad uses each year.
The railroad has not paid tax on fuel in the past because it is
a government agency. That issue is addressed on page 5, lines 15
and 16 and on page 4, lines 19 and 20. The language in those two
places removes the railroad from the category of an agency that
does not pay fuel tax. It also removes the exemption. Under the
bill the new tax will be 20 cents per gallon with an 18 cents
per gallon refund for certain situations, one example being for
vehicles that are not used on the highway, such as backhoes. The
bill exempts the railroad from the 18 cents per gallon refund.
CHAIR COWDERY added the railroad issue was raised by the
trucking industry, which feels it is competing with the
railroad. Recently Spenard Builders shipped a load of lumber
from Seward to Anchorage and the railroad underbid the trucking
industry on 200 loads. He believes it is a matter of fairness
and introduced that provision. The revenue raised from the
railroad will equal $2 million. He asked Mr. Gamble to comment.
SENATOR LINCOLN noted that she asked Commissioner Corbus if the
administration supports this bill because the Governor
introduced it. Commissioner Corbus said the administration has
not taken a position on it at this time. She asked Chair Cowdery
if he worked with the administration.
CHAIR COWDERY said he notified the administration that he
planned to include that provision in the bill.
MR. PAT GAMBLE, President and Chief Operating Officer of the
Alaska Railroad Corporation (ARRC), said he would first speak to
the diesel tax. ARRC believes this bill discriminates against
the railroad in violation of the federal Railroad Revitalization
and Regulatory Reform Act of 1976 because the bill will require
the railroad to pay a substantially higher fuel tax than that
paid by barges, ships and aircraft. Congress adopted that act
for the express purpose of protecting the financial stability of
the railroad industry by shielding railroads from discriminatory
taxation. Several court case decisions from other jurisdictions
have upheld that states may not impose a fuel tax on railroads
that is greater than that imposed on other modes of
transportation.
MR. GAMBLE said his second point is that ARRC believes it is an
inappropriate application in that AS 43.40.010 pertains to tax
collection for the construction and maintenance of airports,
highways and port facilities. ARRC, a state agency, pays for all
construction and maintenance costs of the rail bed. Therefore,
ARRC would be at a direct competitive disadvantage because,
unlike other transportation industries, ARRC would have to pay
the tax to subsidize roads and pay to maintain its own tracks.
CHAIR COWDERY asked if the railroad crosses roads.
MR. GAMBLE said it does; roads have been built up and down the
rail line long after the railroad was built. He said his third
concern is that, as a state agency charged with making a profit,
it is unusual for a state agency to tax another state agency.
ARRC has looked at other states and found no other state that
imposes a fuel or ticket tax on a state-owned railroad. By
ARRC's count, of the 18 state-owned passenger railroads and 2
state owned freight railroads, none are taxed by their states.
He said in terms of the financial impact, it is important to
note that ARRC receives a considerable amount of federal funds,
some directly appropriated from the FRA and others from FTA
formula funds. ARRC leverages the FTA dollars considerably so
that for every ARRC dollar, it receives $9. Therefore a $1.2
million tax, which would come off of ARRC's bottom line, would
equate to a $10 million loss in FTA funds. Those funds are
authorized for every passenger-carrying railroad in the country.
CHAIR COWDERY asked, "On that point, Mr. Gamble, you mean to say
that your expenses of operation of the railroad - whatever those
expenses - denies you some federal funds?"
MR. GAMBLE explained if he did not have the capital dollars to
provide for the match at the rate of 9 percent, he would be
unable to pull in approximately $10 million per year.
CHAIR COWDERY asked if ARRC made a profit of about $8 to $10
million last year.
MR. GAMBLE said it did, if the federal reimbursement figures are
included. He noted if he includes the operating ratio of just
the trains themselves and whether the train movements pay,
ARRC's forecast for 2003 is about $1.1 million from train
operations. Therefore, a $1.2 million tax would put ARRC in the
red in terms of operating ratios for 2003. That will have two
impacts. First, it will amount to $10 million less in federal
funds than ARRC can provide matching funds for. ARRC has a $300
million capital improvement program. If ARRC's lenders see that
ARRC is not making a profit on train operations, ARRC will have
to explain itself to those lenders. ARRC has debt covenants that
must be covered. He said for a multitude of reasons, ARRC would
have to question the legality of the CS from the federal
standpoint. In addition, the CS sends a mixed signal to the
railroad in terms of what the state wants the railroad to do:
does it want the railroad to be profitable on its own or does it
want to tax off that profit as a disincentive? He pointed out
that ARRC uses its profit to buy new equipment for employees, to
offer competitive pay to employees, and to repair buildings.
SENATOR THERRIAULT asked Mr. Gamble to elaborate on the federal
law that prevents a tax from being levied on a state owned
railroad.
MR. GAMBLE said the common name of the act is the 4R Act or 49
U.S.C. 11501. It essentially says that this bill would
discriminate against the railroad because it would require the
railroad to pay a higher fuel tax at 20 cents per gallon than
that paid by barges and ships and aircraft. He said Congress
adopted this statute for the express purpose of protecting the
financial stability of railroads by shielding them from
discriminatory taxation of this type. It would put them at a
competitive disadvantage with other transportation modes.
SENATOR THERRIAULT pointed out the railroad pays no tax at this
time while barges, ships and aircraft do. He asked if the
railroad could be taxed at the same level as barges, ships and
aircraft.
MR. GAMBLE said that it could, according to his understanding of
the law. Barges and ships currently pay five cents per gallon
while aircraft pay three cents per gallon.
SENATOR THERRIAULT asked, if the railroad was taxed, how ARRC
would consider that in its rate setting methodology.
MR. GAMBLE said ARRC has not figured that out yet. He indicated
that the last time ARRC tried to set rates on one of its
passenger services it received quite a response from Talkeetna
area residents. That service is a money-losing proposition that
would lose even more money if the tax were imposed. Some of the
railroad's break-even propositions would not be profitable and
would add burden on to the railroad and take up line space. ARRC
would have to do an analysis of all routes, including the export
coal. ARRC is in negotiations right now to bring that service
back on. ARRC's position has been to assume a rate that is
virtually a break-even rate in order to get coal moving out of
Alaska.
SENATOR THERRIAULT asked if ARRC calculated any numbers to
determine the rates for the coal shipment.
MR. GAMBLE replied ARRC just began to do that when it saw more
detail on the bill.
CHAIR COWDERY said he did not enter into this issue without some
legal advice. He pointed out the railroad is a public
corporation of the State of Alaska. It is a creature of state,
not federal, law and is subject to the laws of the state. Under
the Alaska Constitution, the real and personal property of the
state and its political subdivisions is exempt from taxation
except as provided by law. He noted that under that provision,
the Legislature has the authority to determine whether and to
what extent property of the state is subject to taxation. He
said the federal Alaska Railroad Transfer Act does not appear to
place any constraint on the ability of the state to impose taxes
on ARRC. He stated that under the terms of that act, the
revenues generated by the state-owned railroad should be
retained and managed by the state-owned railroad for railroad
related purposes. He said, according to Senator Ted Stevens,
that provision was intended to avoid the need for annual
appropriations for the railroad from the state. He said,
according to the legal opinion he received, he believes the
state has the right to tax because the railroad is now a state
entity. He pointed out the railroad is in competition with
private industry, which must pay taxes. He said the railroad
would have to raise its rates if it can't compete.
MR. GAMBLE commented that his legal advisors have told him that
the state cannot preempt federal code so the outcome of this
debate will most likely have to be determined in court. It would
be ARRC's responsibility to carry that forward to get a
determination.
CHAIR COWDERY agreed that is a likely outcome.
SENATOR WAGONER asked Mr. Gamble to restate his remark about the
negotiations for the coal contract and the break-even rate.
MR. GAMBLE said he was using that as an example of a case
whereby the railroad would take on an element of business with a
very narrow operating margin. If ARRC had to include the cost of
the tax, it could make the difference between a positive,
neutral, or negative cash flow. Therefore, ARRC would have to do
a segment analyses with the addition of the tax and determine,
on a case-by-case basis, the cost for both passengers and
freight. He was using that as an example of a segment where the
operating ratio is very close to 1:1.
SENATOR WAGONER replied that is a major contract for such a
close ratio because, in that case, the state is subsidizing the
cost of transferring the coal so that a private entity can make
a profit. He noted he has a problem with that.
SENATOR THERRIAULT referred to a document before committee
members that shows the breakdown of the amount of fuels used by
the railroad. He asked if the same 4R Act speaks to the taxation
of fuels that the railroad uses in vehicles that drive on the
road.
MR. GAMBLE said that ARRC has about 180 vehicles ranging from
small pick-up trucks to large semi-tractor trailer trucks. ARRC
has given an estimate of the approximate fuel purchase used for
those vehicles and what the tax on them would amount to. He said
the 4R Act does not apply to those vehicles. ARRC uses about
225,000 gallons for gas and diesel fuel each year for its 180
vehicles and has estimated a $45,000 tax increase for them. He
said ARRC has never tried to recover the taxes it has paid for
fuel at the gas pump.
SENATOR THERRIAULT asked if ARRC is currently paying the $45,000
in taxes.
MR. GAMBLE said that is correct.
SENATOR WAGONER asked if ARRC has published rates that it
charges for most of the commodities that it transports or
whether it negotiates each time it hauls an item.
MR. GAMBLE said that ARRC does both. It negotiates individually
for small contracts but it might sign a contract that lasts a
couple of years with a cruise ship company, for example.
SENATOR WAGONER asked if that would be for passenger travel.
MR. GAMBLE said that is correct. For freight, ARRC attempts to
sign longer term contracts but many of them are very short. He
indicated the Spenard Lumber shipment was a one-time opportunity
and is an example of a short-term contract.
SENATOR WAGONER asked if ARRC has a published rate for shipping
building materials but, in the example of Spenard when the
amount is large, it negotiates an individual contract.
MR. GAMBLE was not sure what members meant by the term
"published rate."
SENATOR WAGONER indicated that truck companies that transport
freight have published rates.
MR. GAMBLE said he would have to check all of ARRC's rates and
is reluctant to give an answer without doing so beforehand. He
offered to get back to committee members with an answer. He said
ARRC negotiates individual rates to a large degree but he cannot
say there are no published rates.
CHAIR COWDERY informed Senator Wagoner that the Legislature has
made attempts in the past to put the railroad under the
Executive Budget Act to give the Legislature the ability to look
at its records. He said one of those attempts came as close as
one vote but, right now, the Legislature cannot look at the
books. He asked Mr. Gamble if the rates are proprietary
information.
MR. GAMBLE said to his understanding, the Legislative Budget and
Audit Committee can look at the books and reveal everything but
proprietary information. He noted, "Of course, that is their
interpretation so that's how I understand the audit process."
CHAIR COWDERY asked Mr. Gamble if he favors placing ARRC under
the Executive Budget Act.
MR. GAMBLE said not under the current rules and directions that
have been given to the railroad for its operations.
CHAIR COWDERY asked whether Mr. Gamble would determine whether
to file a lawsuit if this legislation is enacted.
MR. GAMBLE said he is speaking to the committee without any
direction from the ARRC Board of Directors or the third floor.
He said he is trying to answer questions with no knowledge of
the politics.
SENATOR WAGONER asked the cost, in fuel, to run a train round-
trip between Anchorage and Seward empty one way.
MR. GAMBLE said he would have to get that information.
TAPE 03-12, SIDE B
2:21 p.m.
SENATOR THERRIAULT asked Mr. Gamble what effects a tax might
have on the extension of the rail line through Canada and
whether it would make the rail rates such that the railroad
could not compete with barge traffic.
MR. GAMBLE said he believes the impact on the railroad is quite
straightforward. That cost would simply come off of the bottom
line. It is an expense that goes to the bottom line that is the
function of a train-operating ratio that is close to 1:1. He
said the state's charge to the railroad is to be profitable, as
any private corporation. The state has equipped the railroad
with tools to assist that profitability, including the fuel tax
exemption. He said this legislation represents a change in
attitude toward what the railroad was designed to be. He said a
profitable railroad has been of great benefit to the state in
more ways than just the $1 million that would come from this
tax. He repeated that it is quite important to understand the
leverage on each dollar that ARRC puts into its capital program
is to the benefit of the State of Alaska. He said if ARRC gets
$10 million less as a result of the fuel tax that is $10 million
in terms of labor and supplies that will not go into the
economy.
CHAIR COWDERY asked Mr. Gamble if he believes the State of
Alaska would benefit if the trucking industry made a profit.
MR. GAMBLE said certainly. He said the railroad probably gets
along with the trucking industry better now than during any
other time, one reason being the truckers haul what the railroad
can't and vice versa. He said the case of the Spenard Lumber is
one where some overlap occurred but, in general, there is very
little overlap.
CHAIR COWDERY pointed out that many of the truck companies have
contracts with the marine companies to deliver vans but have no
way to recover the cost of the fuel tax.
SENATOR LINCOLN referred to the on-road vehicles owned by ARRC,
and said it gives her no heartburn to include those vehicles in
the fuel tax but that amounts to only $45,000. She noted Mr.
Gamble said that ARRC has not sought reimbursement for those
taxes and ARRC is working to eliminate fuel tanks in areas with
retail fuel outlets. She asked if ARRC is an entity rather than
a state agency.
MR. GAMBLE said that is correct; ARRC is an instrumentality of
the state.
SENATOR LINCOLN referred to language on page 5, line 16, which
reads:
...for the purposes of this subparagraph, the Alaska
Railroad Corporation (under AS 42.40) is not a
federal, state, or local government agency;
She said she is bewildered by why the legislation has to say
ARRC is not an agency if that is already clarified in AS 42.40.
She noted that Mr. Gamble pointed out, in ARRC's 2003 report to
the Legislature, the Alaska Railroad is mandated to be a self-
sustaining corporation required to conduct its business without
operating subsidies from the state. She was unsure the exemption
would be considered as a subsidy but expressed concern that the
Legislature is considering giving the railroad a 500 foot right-
of-way to extend to Canada. She said on one hand the Legislature
is pushing ARRC to do things while on the other it wants to take
$1.1 million of its operating budget.
CHAIR COWDERY interrupted to say that a committee member needed
to leave and had a question of a Department of Transportation
and Public Facilities (DOTPF) official.
MR. LEVASSEUER, State Maintenance Engineer, DOTPF, told members,
in response to a previous question, that DOTPF spends about $57
million of general fund dollars on state maintenance annually.
DOTPF also spends another $50 million from the general fund
annually to match federal funds for the highway system.
SENATOR THERRIAULT calculated the state spends $107 million per
year but is raising $27 million and said a dedicated fund is not
necessary to steer all of that money into road maintenance
because the state is already spending that much.
MR. LEVASSEUER said that is correct and there is a huge backlog
of deferred maintenance projects on the highway system. He said
the state's outlay is much greater than the anticipated revenue
from the increased fuel tax. He then said DOTPF is getting
further behind on the deferred maintenance projects each year.
He pointed out the increase in the fuel tax is not intended to
affect fuel for snow machine use, motor boats, or ATVs in the
rural areas. He said the Department of Revenue plans to put into
place a mechanism so that rural areas not connected to the road
system will not pay that tax.
SENATOR THERRIAULT asked if the residents in those areas
currently pay the 8 cents per gallon.
MR. LEVASSEUER said they do in most areas but they can get that
money refunded.
SENATOR THERRIAULT asked if the refund is based on a signed
affidavit saying the vehicle is used off road.
MS. WILSON gave an explanation of how the refund structure
works. There are two different types of refunds. The first is
for a situation in which the use is fully exempt, for example
heating fuel. There are two refund mechanisms for that
situation. The dealer that sells the fuel can choose to not
charge the customer the tax and the dealer can file a claim for
a refund. The other alternative is the dealer may charge the tax
and the user then applies for a refund. There is no requirement
that it be done one way or the other. That is not true with off-
road refunds, where the entire tax is not refunded; 6 of the 8
cents are. The dealer must collect the 8 cents and the user then
applies for a refund of 6 cents. She said the refund must be
claimed within the year of the purchase using a simple form.
CHAIR COWDERY announced his intention to hold SB 112 in
committee today.
2:37 p.m.
SENATOR WAGONER asked in which areas of the state residents are
eligible for the 6 cent off-road tax refund. He asked if that is
for off-road vehicles statewide, so that a four-wheeler in Kenai
would be eligible.
MS. WILSON explained the refund is available statewide for those
types of vehicles. It also applies to any vehicle used on a
highway that is not required to be licensed. Therefore, in a
remote area, the state may not require vehicles to be licensed
on local roads so a pick-up driven on that road would not pay
the tax. The department does not have a list of the roads that
are not considered to be public. Usually it is fairly apparent
whether a road is connected to "public ways" or whether the road
is for local use only. The department sometimes contacts the
taxpayer or the locality for clarification.
SENATOR WAGONER said he questions why the state does that for 6
cents per gallon and whether it costs the state more to
administer than the amount reimbursed.
MS. WILSON replied, "...I can't really speak to the thinking
historically on that one. I know that probably the biggest off-
road claimants are your construction companies, mining companies
and so on that use a lot of what we consider to be off-road
equipment."
SENATOR WAGONER said he was concerned about the four wheelers
and the snow machines.
MS. WILSON said she does not know why the refund program was set
up that way.
SENATOR OLSON asked for an estimate of how much of the tax
collected is not refunded to eligible recipients every year.
MS. WILSON said the department does not have any way to measure
the refunds that are not claimed.
SENATOR OLSON asked if a 100,000 gallon tank used each year in
Hooper Bay would generate a $6,000 refund.
MS. WILSON said that is correct.
MR. LEVASSEUER noted the current 8-cent tax was instituted in
1961. If it were adjusted for the CPI since that time, it would
equal about 48 cents. At 8 cents, Alaska's fuel tax is the
lowest in the nation. He said DOTPF and the administration
strongly support passage of this bill.
CHAIR COWDERY said he recently saw prices of $2.12 and $2.19
cents per gallon in other states.
SENATOR WAGONER noted that Alaska is number two because
Georgia's tax is 7.5 cents per gallon.
MR. LEVASSEUER pointed out that Georgia charges a sales tax on
top of the 7.5 cents.
SENATOR LINCOLN reminded Chair Cowdery that her question to Mr.
Gamble was not yet answered.
MR. GAMBLE said that Senator Lincoln touched a nerve and got
right to the heart of the issue that ARRC is debating. ARRC is
currently facing a number of initiatives set up by the
Legislature, SB 112 being one, to change the original formulas
that set up the railroad during the transfer. He said it is not
his place to defend to the death against something the
Legislature believes is for the betterment of the state. His job
is to take the guidance within statute and make sure that ARRC
upholds that guidance. However, ARRC gets caught between a rock
and a hard place when some of the developmental and more risky
undertakings that the railroad might participate in clash head-
on with what is necessary for the railroad to maintain a healthy
bottom line and the appropriate ratios that go with that. He
said if ARRC is to do that, it is dependent on the elements of
the original formula, such as not being taxed, being indemnified
and being able to use its land for revenue. Those are the
reasons the railroad has been successful. If the Legislature
wants to change those elements, ARRC wants to look at the
unintended consequences carefully because ARRC's current success
means the original formula was a good one. He said if ARRC is
penalized for its success by giving away its bottom line to the
general fund as opposed to continually allow ARRC to put its
profits back into the railroad, he would caution the alternative
plan is not as good as the original one.
MR. GAMBLE said the weight of a freight train directly relates
to the maintenance of that line. ARRC puts its profits into
maintaining its rail line - no one else pays for that. ARRC will
do an analysis on maintenance to make sure ARRC can move the
freight and passengers. He hopes if the rail line is extended,
that formula would pertain as it has for the last 17 years. He
said his best technical and business advice is that the existing
formula is a good one and by:
...messing with it, we're going to pull a thread on
this fabric that's going to start to unravel. I
guarantee you that once the thread gets pulled, it's
just simply human nature, back to the well and try it
again and try it again in the future. I would just
simply counsel that it would be a shame to see the
railroad ultimately become more and more of a ward of
the state when, in fact, for the most part, you don't
have to worry about us right now in terms of our
health and welfare...."
SENATOR WAGONER asked Mr. Gamble to include the annual number of
passengers and the costs for those trips when he sends the fuel
consumption information.
MR. GAMBLE agreed to do so.
SENATOR WAGONER asked how much ARRC's fuel costs increased in
the last year and how it passes that cost on to its customers.
He pointed out that he owned a home improvement center and had
products of various weights hauled. He said if the truck company
had a fuel cost increase, it automatically added a fuel
surcharge to its rates. He asked if ARRC does the same thing.
MR. GAMBLE said it does partially. For example, it can apply a
surcharge to its maritime traffic that arrives via barge.
However, it cannot apply a surcharge to its passenger operations
in which it has contracts with the cruise ship companies and it
does not apply a surcharge when moving petroleum products from
the refinery to Anchorage. ARRC's rates are set such that it
cannot apply a surcharge in that case.
SENATOR WAGONER asked if ARRC is then eating increased fuel
costs.
MR. GAMBLE said he would not say that, because ARRC has a very
complicated contract with Williams [refinery] regarding fuel and
fuel price increases or decreases that works for both parties.
It is a hedge. ARRC buys futures with Williams for fuel as well.
ARRC works that in an entirely different way than it does for
barge traffic for which it simply applies a surcharge. He said
ARRC does not apply a surcharge for passenger traffic.
CHAIR COWDERY noted that Mr. Gamble said ARRC would be unable to
recover a 12 cent increase in the fuel tax. He asked, "But
haven't fuel prices [gone] up at least that in the last year?
And you absorbed that somehow and it probably will go back down,
we hope."
MR. GAMBLE said ARRC did absorb some of that increase, just like
it absorbs other cyclical expenses. He said a few times the cost
of fuel increased and then decreased so quickly ARRC could not
even apply a surcharge. However, to the degree ARRC can apply a
surcharge to a portion of its railroad business, it will.
CHAIR COWDERY noted the trucking industry is faced with the same
problem. It has contracts to deliver vans and if this tax is
implemented, it cannot recover those costs until those contracts
come up for renewal.
MR. GAMBLE agreed and said to the degree all of the fuel taxes
are pooled and some of it comes back to ARRC to help maintain
the rail line, ARRC could sit down and look at that. ARRC wears
down the rail line with trains and ARRC pays for it. If none of
the tax increase will go toward rail line maintenance, ARRC will
have to "eat" that cost.
CHAIR COWDERY noted that ARRC made a profit last year while some
of the trucking industry did not. He then announced he would
hold the bill in committee for another hearing.
MR. GAMBLE thanked members for the opportunity to testify and
agreed that ARRC made a profit last year, but if real estate
revenue weren't included, the train operations would have been
very marginal.
CHAIR COWDERY announced he was holding SB 112 in committee and
then adjourned the meeting at 2:55 p.m.
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