Legislature(2021 - 2022)BELTZ 105 (TSBldg)
03/24/2022 01:30 PM Senate TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| SB170 | |
| SB231 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 170 | TELECONFERENCED | |
| *+ | SB 231 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 231-AK RAILROAD CORP; EXEC BUDGET ACT
2:23:42 PM
CHAIR MYERS announced the consideration of SENATE BILL NO. 231
"An Act providing that the Alaska Railroad Corporation is
subject to the Executive Budget Act; providing that expenditures
of the Alaska Railroad Corporation are subject to appropriation;
and providing for an effective date."
2:24:04 PM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, Juneau, Alaska, stated that the governor
introduced SB 231 to ensure that the expenditure of state funds
was subject to legislative appropriation. This bill would
require the Alaska Railroad Corporation (ARRC) to comply with
the Executive Budget Act, similar to other corporations and
state agencies. ARRC is a public corporation within the
Department of Commerce, Community, and Economic Development but
currently is not included in the department's annual operating
budget.
2:25:21 PM
SENATOR KIEHL stated that ARRC had operated this way for a long
time. He related his understanding that the audit did not make
any significant findings. He asked the reason for making this
change.
MR. STEININGER responded that this bill does not address
specific audit findings. It considers whether state funds should
be expended without legislative appropriation control. He noted
that there were limited instances without legislative
appropriation control. He highlighted that the only one he could
recall was grants the Alaska Mental Health Trust Authority
(AMHTA)received. He noted that these grants were required by an
Alaska Supreme Court case. He explained that in this case there
is not any indication of how ARRC spends money outside the
Executive Budget Act or legislative appropriation control or why
they shouldn't be subject to that scrutiny. The legislature and
Alaskans have the right to review the budget process and changes
to the operational spending plans to provide accountability and
transparency.
2:27:40 PM
SENATOR KIEHL pointed out that other state corporations expend
funds the legislature does not appropriate, such as the Alaska
Industrial Development and Export Authority (AIDEA). The
legislature does not oversee any of AIDEA's investments or
authorize most of the Alaska Housing Finance Corporation's
housing investments even though they are state corporations. He
asked whether the state should initiate comparable reforms for
those corporations.
MR. STEININGER responded that the operating costs for those
corporations are in the annual operating budget. The loans or
investments made are from funds capitalized via legislative
appropriation, so the legislature had appropriation control. The
legislature has appropriation control over the funds via a
section in the operating budget that grants broad authority over
AHFC's programs and subjects them to scrutiny. However, ARRC
does not appear in the appropriation bill. The public should be
able to access the Office of Management Budget or Legislative
Finance websites and review ARRC's expenditures and legislative
approval for them.
2:30:16 PM
CHAIR MYERS referred to Section 5 of SB 231, which would require
ARRC to report on the use of its assets.
MR. STEININGER responded that the administration would like ARRC
to provide an accounting of the existing assets and how they
will be used. The administration included reporting requirements
that would benefit ARRC's transition to fall under the Executive
Budget Act. He opined it would be helpful to the legislature
during the appropriation approval process. He characterized
becoming familiar with ARRC as potentially a steep learning
curve for committees.
2:31:35 PM
CHAIR MYERS asked whether the other corporations prepare similar
reports.
MR. STEININGER acknowledged that he was not familiar with every
report work required, but many of them have annual financial and
other reporting requirements.
2:32:00 PM
SENATOR MICCICHE asked how long ARRC had not been subject to the
Executive Budget Act (EBA).
MR. STEININGER responded that he was unsure when the federal
government transferred ARRC to the state.
CHAIR MYERS noted that Mr. O'Leary would be testifying later.
2:32:34 PM
SENATOR MICCICHE stated that for the last 40 years, ARRC had not
been subject to EBA. He wondered what problem arose because if
it was valid, the legislature might support SB 231; otherwise,
it seemed arbitrary.
MR. STEININGER explained that the governor's office received
constituent questions that led policymakers to review ARRC's
operations more closely. After noting ARRC was not in the budget
but the corporation expends public funds, the administration
took steps to resolve it in SB 231.
2:34:42 PM
SENATOR MICCICHE offered his belief that the state establishes
corporations to provide them with the flexibility to employ
private sector principles and let experts run organizations in a
manner that is typically far more efficient than public sector
organizations. He said it seems like this bill is moving ARRC
backward. He said he would listen, but it seems strange that
ARRC had operated without it being an issue for so long. He
wondered if OMB was having problems obtaining answers from ARRC.
MR. STEININGER responded that he was not aware of OMB having
issues obtaining any answers from ARRC. However, it might be
because ARRC does not fall under the EBA, so OMB does not have
an opportunity to ask questions. Since ARRC is exempt from the
Executive Budget Act, OMB does not receive any financial or
operational plans that OMB receives from every other state
corporation or state entity, which could lead to questions.
Throughout the interim, OMB works with corporations and other
entities to prepare the following year's budget, which leads to
questions about operations and management that could lead to
interventions.
2:37:32 PM
BILL O'LEARY, President and CEO, Alaska Railroad Corporation
(ARRC), Anchorage, Alaska, stated that the Alaska Railroad Board
has not met since this bill was introduced, so he cannot offer
the board's position on the bill. He offered to highlight any
impacts of SB 231 on the railroad.
MR. O'LEARY highlighted an essential distinction between ARRC
and other state corporations. He stated that the railroad is an
operating entity, not an investment company or one that provides
mortgages, such as AIDEA and AHFC. It operates in a very
competitive, dynamic marketplace. The model selected for the
Alaska Railroad came from a series of studies. He provided a
brief history, noting that the federal government owned the
railroad until the early 1980s, when the state purchased it. At
that time, the 13th legislature considered what model to use for
the railroad. Before state ownership, the railroad had
significant financial issues and was in deep disrepair. Some
members felt that many of the railroad's problems stemmed from
the railroad being subject to the federal budget process. He
characterized the railroad as being "starved" by the federal
process. Many studies, including the Harvard Business Review and
the University of Alaska's Institute of Social and Economic
Research (ISER), considered the best model for the railroad and
determined that the railroad should operate similarly to a
private corporation with oversight.
2:40:25 PM
MR. O'LEARY stated that this would allow the railroad to be
nimble enough to consider opportunities from dissatisfied
customers and the marketplace and solve the issues. He said he
was unsure how that would work under the Executive Budget Act.
2:41:30 PM
MR. O'LEARY provided several examples. He related that 2020 was
a financial bloodbath regarding ARRC's passenger service. ARRC
has three primary revenue sources: passenger services, freight,
and real estate activity. In 2020, the railroad moved about six
percent of the passengers it moved in 2019. He noted the
railroad operates on a calendar year, so it was very challenging
to build the 2021 budget. It did so by consulting with its
customers and groups and considering the general economic
situation. ARRC's seven-member board appointed by the governor
approved the budget. Shortly after that, things changed. It
became clear in March and April 2021 that the plans for
passenger service were markedly inadequate. With the advent of
vaccines and Europe still closed, many independent travelers
traveled to Alaska, but the railroad could not move them without
making significant changes. ARRC management worked with the
Alaska Railroad Corporations Board of Directors to quickly
develop a revised plan that allowed them to add sixty new train
starts to support the additional travelers.
2:44:31 PM
MR. O'LEARY indicated that ARRC had significant freight growth
during this time. He estimated that ARRC had a $20 million
opportunity, but to capture it would require spending $10
million, which was not included in the original budget.
2:44:52 PM
MR. O'LEARY characterized the 2021 tourism growth as an
opportunity to be nimble and move quickly. He stated that it was
similar to ARRC's work with the military. He said the railroad
frequently moves military equipment between Fort Wainwright and
the Port of Anchorage. He indicated that the notice is often
unsuitable for a long-range budget plan. However, ARRC can look
at the opportunity and work with its military partners. It is
not an appropriate answer in terms of national defense to tell
the military that ARRC cannot accommodate them because it lacks
the budget to do so. He indicated that these are the types of
concerns that ARRC has about SB 231.
MR. O'LEARY related examples on ARRC's capital side. He related
that customers might approach the railroad with a proposition to
move pipe if ARRC is willing to partner in purchasing
specialized equipment to offload the pipe. In such cases, ARRC
can put together a business case and call a board meeting to
acquire the authority to purchase the equipment expeditiously
due to the nature of the railroad's model. He expressed concern
that the Executive Budget Act may not allow the railroad to move
at the speed necessary to accommodate its customers.
2:46:33 PM
MR. O'LEARY indicated that there were other impacts related to
ARRC's outstanding debt, and the railroad is not entirely sure
how SB 231 would impact federal law, but these were the
immediate first blush impacts that came to mind.
2:46:55 PM
CHAIR MYERS asked what impacts SB 231 would have on ARRC's labor
contracts and negotiations.
MR. O'LEARY responded that the railroad was trying to understand
the impacts, partly due to its unfamiliarity with the Executive
Budget Act. He related that roughly 75 percent of railroad
employees are members of one of its five unions. He explained
the process, such that ARRC negotiates with its unions, reaches
an agreement, and brings it to their board for approval. The
unions bring the agreement to its membership for ratification,
which becomes incorporated into the budget. He stated that it
does not run on a static timeframe. For instance, negotiations
may take three days, which recently happened, while it might
take one union six years to ratify its contract. He acknowledged
that it could be challenging, but they plan for it through their
budgetary process.
2:48:14 PM
SENATOR SHOWER stated that it did not seem that SB 231 would
take away the railroad's authority to operate once the
legislature appropriated the funding. He asked whether SB 231
would prevent the railroad from making decisions like the ones
he just illustrated. He envisioned that if the legislature had
approved funding, the railroad could make subsequent decisions
without going back to the legislature since it would have the
board's authority to make decisions. He wondered if there would
be any issues.
2:49:35 PM
MR. O'LEARY acknowledged that he was not completely familiar
with the Executive Budget Act. He related his understanding that
the railroad's operating expense budget would be set at a
specific amount, for example, $150 million, and ARRC would
expend funds based on the plan the railroad put together.
However, if the railroad had an opportunity to capture $20
million but needed to expend $10 million, he was unsure the
railroad could do so. He surmised that there might be mechanisms
between Legislative Budget and Audit and OMB. Still, those
mechanisms may not provide sufficient speed needed for ARRC to
take advantage of the opportunities.
2:51:04 PM
SENATOR SHOWER recalled that some Whittier constituents have
complained about dealing with the railroad concerning its
property. He related his understanding that ARRC assumes that
the land is theirs and they won't negotiate. He wondered if SB
231 might alleviate some of the concerns because the railroad
would need to be more accommodating to people, entities, or
municipalities. Some people might like SB 231 to influence how
the railroad operates in Alaska. He indicated that some people
had expressed concern about how ARRC has handled its property in
Alaska. He said he was interested in having ARRC working better
within that context rather than having to tell constituents that
the state doesn't have any oversight over the railroad.
2:53:10 PM
MR. O'LEARY responded that the railroad runs heavy, noisy,
smelly equipment through people's back yards. He stated that the
vast majority of issues the railroad faces relate to land
because the railroad bisects part of the state. He reported that
ARRC owns 36,000 acres of land, of which 18,000 acres are
associated with ARRC's right-of-way. Although significant
discussions have arisen over the use and ownership of the right-
of-way, it is likely beyond the scope of today's discussion. He
stated that ARRC walks a fine line when working with communities
and individuals because the railroad is charged with the need to
be self-sustaining and an agent for economic development. While
he would not state that ARRC does it perfectly every time, the
railroad held successful discussions with Whittier about leasing
its land for economic development activities related to a new
passenger cruise dock. The dock will be on railroad-owned land
and has gone before the board and was approved by the Whittier
City Council. He acknowledged that the railroad sometimes "butts
heads" with people, but ARRC's goal is to be reasonable and fair
while trying to walk that fine line.
2:55:20 PM
MR. STEININGER offered to respond to Senator Shower's questions
about processes for flexibility to discuss inherent operational
challenges in the annual budget cycle. He highlighted that other
state agencies with similarly dynamic operations are subject to
the Executive Budget Act, including the Alaska International
Airport System. He stated that OMB employs some tools to provide
it with the ability to respond to emerging events and changing
operational conditions. He noted that Mr. O'Leary referred to
the Legislative Budget and Audit process through revised
programs, an option an entity could use to access additional
receipts from a public corporation that weren't otherwise
appropriated. OMB can send notice to the committee, and within
45 days or sooner, the agency could begin expending the funds if
the committee grants it. Further, the budget might build in some
contingency funding to address some of those concerns in the
EBA.
2:57:15 PM
CHAIR MYERS recalled that about 12 years ago, ARRC increased the
rent on the land leased by the Fairbanks Ice Park, so the park
had to leave. The railroad argued that it was statutorily
required to get the market rate for its land. He asked whether
anyone had leased the land in the last dozen years.
MR. O'LEARY responded that he was referring to the Chena
Landings Subdivision. He recalled that the legislature passed a
bill in 2018 that allowed the railroad to subdivide the land and
it has sold a significant number of housing lots.
2:58:34 PM
CHAIR MYERS recalled that the Alaska Railroad owns the
waterfront in Nenana. He related his understanding that the city
leased the railroad's land and built up some infrastructure. The
City of Nenana was subleasing some portions to Crowley Shipping.
The barge lines ended operating in about 2016. He stated that
the City of Nenana indicated that the Alaska Railroad had not
lowered its lease payments.
MR. O'LEARY responded that he was unaware of any changes to the
lease rate. He stated that some of the financial difficulties
that the City of Nenana has faced may have affected collecting
revenue. He said the Alaska Railroad discussed some solutions
with the city last year. He acknowledged that the City of Nenana
was interested in owning those lands. Although he was unsure of
the status, he recalled that the Alaska Railroad ordered an
appraisal. He further recalled that the City of Nenana was
considering grant funding to pay any arrearage and perhaps
purchase the lands.
3:00:31 PM
SENATOR KIEHL stated that he was unsure why the governor
introduced the bill since the governor appoints the whole board.
MR. O'LEARY understood the concept of wanting ARRC to look like
other state corporations. He offered his view that ARRC is
different. He said he previously served as the financial
controller for the Alaska International Airport System (AIAS)
for several years. He characterized it as a facility, which is
different than an operating entity, which would be more like
being an airline and an airport. He stated that there are
differences with ARRC due to the competitive marketplace and the
need for rapid responses. He noted that ARRC shares everything
other than highly proprietary information with the legislature
if asked to do so. He stated that ARRC sends a copy of ARRC's
board-approved operating and capital budgets and five-year plans
to the legislature and the state. The Alaska Railroad has an
annual financial audit by an external private certified public
accountancy firm that will be released on March 31, 2022. ARRC
provides updates for briefings to the legislature when
requested. He stated that substantial accountability is vested
with ARRC's seven-member Board of Directors.
3:03:54 PM
SENATOR KIEHL related that the Alaska Railroad Corporation
(ARRC) had been given authority to bond and build a rail line to
Port McKenzie and for a Kenai Gasification Project. He asked why
it had not done so.
MR. O'LEARY answered that the Alaska Railroad Corporation (ARRC)
walks a fine line between self-sustaining and an economic
development agent. He related that the Alaska Railroad worked
closely with both groups to get the bonding authority put in
place, understanding that there would need to be a source of
repayment for those funds. He characterized it as making a
business case for the projects. However, the business case has
not materialized that would permit ARRC to issue the bonds,
which would need to be repaid.
3:05:29 PM
SENATOR KIEHL remarked that the state could not force the Alaska
Railroad to make decisions that would lead to insolvency. He
stated that he knows very little about the federal Railroad Act.
He asked whether the Department of Law vetted this bill to
determine if there were any potential conflicts with the federal
law.
3:06:06 PM
MR. STEININGER deferred to the Department of Law.
3:06:32 PM
CHAIR MYERS held SB 231 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 170 Research Document_Fleet Status 3.1.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170 Research Document_Vessel Information Table by AMHS DOT.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_AMHS Procurement Fact Sheet.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_Current AMHS Operating Plan 1.24.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 170_Research_Tariff Impacts_Section 42.50.570.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |
| SB 231 DCCED Fiscal Note.PDF |
STRA 3/24/2022 1:30:00 PM |
SB 231 |
| SB 231 Sectional Analysis 03.24.2022.pdf |
STRA 3/24/2022 1:30:00 PM |
SB 231 |
| Transmittal Letter HB 231 AKRR 03.11.22.pdf |
STRA 3/24/2022 1:30:00 PM |
HB 231 |
| S TRA - AMHS Routes and Service (03-24-2022).pdf |
STRA 3/24/2022 1:30:00 PM |
SB 170 |