Legislature(2005 - 2006)BUTROVICH 205

04/07/2005 01:30 PM TRANSPORTATION


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01:36:08 PM Start
01:36:39 PM SB153
02:29:11 PM Overview: Dotpf Projects
03:10:09 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 153 INTERNATIONAL AIRPORTS REVENUE BONDS TELECONFERENCED
Moved SB 153 Out of Committee
+ DOT/PF - Briefing of Projects: TELECONFERENCED
Wasilla Bypass
McCarthy Road
Mid Region (SE) Access aka Bradfield/
Gravina Island Bridge
North Pole Rich Hwy/Dawson Interchange
Fairbanks University Ave/Giest Road
Intersection
Bills Previously Heard/Scheduled
                                                                                                                                
          SB 153-INTERNATIONAL AIRPORTS REVENUE BONDS                                                                       
                                                                                                                                
1:36:39 PM                                                                                                                    
CHAIR HUGGINS announced SB 153 to be up for consideration.                                                                      
                                                                                                                                
MR. MIKE BARTON, Commissioner, Department of Transportation and                                                                 
Public Facilities (DOTPF), said:                                                                                                
                                                                                                                                
     The  bill  before  you  raises the  bond  cap  for  the                                                                    
     issuance  of international  revenue assistance  revenue                                                                    
     bonds by $288  million. This increase will  allow us to                                                                    
     issue bonds  that will be  used to finance  projects at                                                                    
     Fairbanks and Anchorage airports.                                                                                          
                                                                                                                                
     Anchorage  is the  number one  cargo  airport in  North                                                                    
     America. The  outlook for cargo at  Anchorage indicates                                                                    
     a  steady growth  in  cargo and  much  of the  airports                                                                    
     operation is  financed by  cargo carriers.  The airport                                                                    
     is  operated in  accordance  with an  agreement with  a                                                                    
     carrier  that obligates  the carriers  to  pay for  the                                                                    
     operation of  the airport, including the  redemption of                                                                    
     these bonds that we would  like to issue. The operating                                                                    
     costs are  paid out of  revenues from the  carriers and                                                                    
     federal FAA funds for capital programs.                                                                                    
                                                                                                                                
     1:38:21 PM                                                                                                               
     There  are  27  carriers  that  are  signatory  to  the                                                                    
     agreement  and they  voted in  January  on the  Capital                                                                    
     Improvement Projects that these  bonds will finance and                                                                    
     approved the  package. Revenue bonds are  commonly used                                                                    
     at airports across the country  to finance this type of                                                                    
     capital improvement.  As an example, I  think that each                                                                    
     of the  New York airports  carries about $2  billion in                                                                    
     bond debt.  These bonds will provide  the financing for                                                                    
     new  terminals  in Fairbanks,  the  concourse  A and  B                                                                    
     retrofit  in   Anchorage  and  a  number   of  airfield                                                                    
     projects. There  are no general funds  involved in this                                                                    
     project.                                                                                                                   
                                                                                                                                
1:40:18 PM                                                                                                                    
SENATOR COWDERY  said Anchorage International Airport  sells more                                                               
fuel   than  Los   Angles  International   Airport  and   Houston                                                               
International Airport,  which indicates its size  and importance.                                                               
He heard approximately  11 percent of the  Anchorage workforce is                                                               
involved in the airport. He expressed support for SB 153.                                                                       
                                                                                                                                
CHAIR  HUGGINS said  it is  important for  the committee  to know                                                               
what projects the bill would allow  and how the bill would affect                                                               
the price of airline tickets in Alaska.                                                                                         
                                                                                                                                
COMMISSIONER BARTON said ticket  purchasers and federal taxpayers                                                               
would  pay for  the  improvements. In  addition  to the  terminal                                                               
projects, SB  153 would allow runway  reconstruction and airfield                                                               
maintenance  equipment in  Fairbanks.  The runway  reconstruction                                                               
would  cost   almost  $52   million;  the   airfield  maintenance                                                               
equipment  would be  just  under $3  million.  With the  terminal                                                               
projects,  the  total cost  of  maintenance  and improvements  at                                                               
Fairbanks would be $155 million over the next five years.                                                                       
                                                                                                                                
Expenditures in  Anchorage will include aprons,  general aviation                                                               
parking,  additional taxiway,  a  snow  melting system,  homeland                                                               
security upgrades in the  terminal, noise abatement improvements,                                                               
safety,   security,   and    information   system   improvements,                                                               
utilities,  roads  and  grounds  upgrades,  airfield  maintenance                                                               
equipment  and advanced  project planning  and design.  The total                                                               
investment will be  Anchorage is $288 million over  the next five                                                               
years.                                                                                                                          
                                                                                                                                
SENATOR KOOKESH arrived at 1:46:04 PM.                                                                                        
                                                                                                                                
CHAIR HUGGINS  asked whether additional  land has been  set aside                                                               
to   accommodate  the   planned   expansion   of  the   Anchorage                                                               
International Airport.                                                                                                          
                                                                                                                                
COMMISSIONER BARTON said  land has been set  aside to accommodate                                                               
the future expansion of the Anchorage International Airport.                                                                    
                                                                                                                                
CHAIR HUGGINS said:                                                                                                             
                                                                                                                                
     Let's take  a worst-case  scenario, which is  this bond                                                                    
     package  doesn't   happen.  Could  you  give   us  your                                                                    
     thoughts as Department  of Transportation Commissioner,                                                                    
     about the  impact of  that in  terms of  the concourses                                                                    
     and hazardous materials and things of that nature.                                                                         
                                                                                                                                
COMMISSIONER BARTON responded:                                                                                                  
                                                                                                                                
     One  of the  major reasons  for the  concourse A  and B                                                                    
     retrofit  is  that  they  are  deficient  in  terms  of                                                                    
     seismic standards. The octagonal  end of concourse B is                                                                    
     at  extreme  risk. The  concourse  itself  is the  next                                                                    
     level down in risk and  the ticket and concessions area                                                                    
     is also at extreme risk.                                                                                                   
                                                                                                                                
1:49:37 PM                                                                                                                    
DAVE  EBERLE, Director  of  Airport  Construction, Department  of                                                               
Transportation and Public Facilities (DOTPF), said:                                                                             
                                                                                                                                
     Concourse B poses the largest  risk. The hexagon at the                                                                    
     end of concourse B and  the ticket lobby and concession                                                                    
     area are at  the next highest-level risk.   Concourse B                                                                    
     itself could  actually suffer a  total collapse  in the                                                                    
     event of a  major quake according to  a recent thorough                                                                    
     evaluation of all of  the airport structures. Concourse                                                                    
     A  is  in the  best  shape.  It  is the  most  recently                                                                    
     constructed and  only has  a few  seismic deficiencies.                                                                    
     However,  there  are   some  structural  upgrades  that                                                                    
     should be done to A at this time.                                                                                          
                                                                                                                                
COMMISSIONER BARTON asked Mr. Eberle to address the Fairbanks                                                                   
terminal.                                                                                                                       
                                                                                                                                
MR. EBERLE responded:                                                                                                           
                                                                                                                                
     I don't know all of the  details of Fairbanks, but I do                                                                    
     know they  have similar structural deficiencies  in the                                                                    
     older   sections   of   their  buildings.   There   are                                                                    
     additional problems  in Fairbanks  due to  the location                                                                    
     of  the  terminal  to  the  taxiways.  There  are  some                                                                    
     interference    issues     arising    from    clearance                                                                    
     requirements between  the taxiway  and any  jets parked                                                                    
     at the terminal.                                                                                                           
                                                                                                                                
     1:52:09 PM                                                                                                               
                                                                                                                                
     They  have evaluated  whether they  should rehabilitate                                                                    
     the  existing terminal  or build  a new  terminal. They                                                                    
     have decided that it is  most cost effective to upgrade                                                                    
     the newer sections  of the terminal and  to rebuild the                                                                    
     older sections of the terminal.                                                                                            
                                                                                                                                
COMMISSIONER BARTON  said that the  vulnerability of  the airport                                                               
to seismic  activity represents  a great  liability to  the state                                                               
since  it  could be  accountable  for  losses associated  with  a                                                               
collapse  of the  concourse. He  added that  in the  event of  an                                                               
earthquake, it  would be  very important  to have  an operational                                                               
airport.                                                                                                                        
                                                                                                                                
CHAIR HUGGINS said:                                                                                                             
                                                                                                                                
     Mr.  Commissioner,  I think  that  it  is important  to                                                                    
     Alaskans to  have some assurance  that we won't  have a                                                                    
     repeat  of  the  cost  overruns  that  we  had  in  the                                                                    
     previous  concourse.Could you  speak  to us  for a  few                                                                    
     moments about that.                                                                                                        
                                                                                                                                
COMMISSIONER BARTON responded:                                                                                                  
                                                                                                                                
     I would  be delighted to  address that. First,  part of                                                                    
     an  overrun on  concourse  C was  the  result of  9/11.                                                                    
     Second, part  of the  additional cost  was a  result of                                                                    
     increased  space  needs  that were  identified  by  the                                                                    
     airlines. The third  part was a result  of the building                                                                    
     permit  process and  none of  us want  to revisit  what                                                                    
     happened there.   We  have decided  to use  a different                                                                    
     management  process for  both Fairbanks  and Anchorage,                                                                    
     what  is  commonly   called  'Construction  Manager  at                                                                    
     Risk'.  Before we  enter  into  the final  construction                                                                    
     contract, we  will ask for  a guaranteed  maximum price                                                                    
     for each of the terminal facilities.                                                                                       
                                                                                                                                
     This  is a  process  that  has not  been  used much  in                                                                    
     Alaska.  It  has  been  used  in  other  parts  of  the                                                                    
     country. It  has been used  extensively by the  City of                                                                    
     Phoenix.  I think  that,  coupled  with the  management                                                                    
     structure that  we have agreed with,  with the airlines                                                                    
     called  'Program   Executive  Committee'  which   is  a                                                                    
     committee  composed of  an  airline representative  and                                                                    
     some  DOT staff,  which  will look  at  any changes  in                                                                    
     scope that might come forth  as this project moves down                                                                    
     the road, and  they will make recommendations  to me on                                                                    
     whether to accept or reject  them. Our goal is to bring                                                                    
     this  project in  on time  and on  budget and  we think                                                                    
     that this process will allow us to accomplish that.                                                                        
                                                                                                                                
SENATOR COWDERY asked  if the state would  insure the contractors                                                               
working  on  the projects  or  if  the contractors  would  insure                                                               
themselves.                                                                                                                     
                                                                                                                                
1:57:27 PM                                                                                                                    
MR.  EBERLE  replied  that  the design  firm  would  have  annual                                                               
insurance  through  the  Division   of  Insurance.  He  said  the                                                               
department  has not  decided if  it will  buy a  project-specific                                                               
policy  such  as  it  did   for  the  concourse  C  project.  The                                                               
construction  manager  at  risk  would  not  be  the  appropriate                                                               
contracting  body to  carry  the annual  insurance;  it would  be                                                               
carried through  the designer. Either the  department would place                                                               
a  separate  policy  or  it  would be  done  through  the  design                                                               
department.                                                                                                                     
                                                                                                                                
1:59:04 PM                                                                                                                    
SENATOR FRENCH  asked how the projects  would add to the  cost of                                                               
an airline ticket.                                                                                                              
                                                                                                                                
MR. BARTON  replied he assumes  the airlines have  considered the                                                               
question  and have  determined that  it  would not  significantly                                                               
affect their market.                                                                                                            
                                                                                                                                
2:00:40 PM                                                                                                                    
SENATOR FRENCH  asked whether the  cost of improvements  would be                                                               
paid by local ticket revenue.                                                                                                   
                                                                                                                                
COMMISSIONER  BARTON  said the  payment  would  not be  localized                                                               
since the airports  of Anchorage and Fairbanks are  operated as a                                                               
single entity in terms of cost recovery.                                                                                        
                                                                                                                                
COMMISSIONER  BARTON remarked  about  80 percent  of the  revenue                                                               
collected  from the  International  Airport  System is  collected                                                               
from cargo carriers is not related to passenger ticket prices.                                                                  
                                                                                                                                
2:03:11 PM                                                                                                                    
SENATOR FRENCH asked the state's upper  limit to pay for bonds at                                                               
both airports.                                                                                                                  
                                                                                                                                
COMMISSIONER BARTON  replied the  limit is  ultimately determined                                                               
by what the  bond buyers are willing  to pay. He does  not know a                                                               
specific number and he reminded  the committee that many airports                                                               
have a greater bond debt than Alaska has.                                                                                       
                                                                                                                                
DEVEN MITCHELL, debt manager, Department of Revenue, commented:                                                                 
                                                                                                                                
     The question  as far as  what is the  airports capacity                                                                    
     to borrow  is answered  by a  complex equation,  if you                                                                    
     will.   There are rates  and charges at the  airport as                                                                    
     it is  operated as  an enterprise fund  as Commissioner                                                                    
     Barton pointed out, and  there is potential competition                                                                    
     for the  cargo carriers  from other airport  systems in                                                                    
     North  America.   I think  that  Anchorage has  certain                                                                    
     strategic  advantages   in  terms  of   its  geographic                                                                    
     location  and its  regulations.   As far  as how  their                                                                    
     fees compare  to the other potential  competition, they                                                                    
     are well below the other airports.                                                                                         
                                                                                                                                
     As far as additional bonds,  we have covenants that are                                                                    
     in  our bond  documents which  are already  outstanding                                                                    
     that limit our  ability to issue additional  bonds.  We                                                                    
     have to  have a  feasibility report conducted  and meet                                                                    
     both  an additional  bonds  test as  well  as an  early                                                                    
     recovery  requirement projected  into the  future.   So                                                                    
     those  are   assurances  that   we  have   provided  to                                                                    
     purchasers of this debt that  we won't borrow too much.                                                                    
     Again, as  commissioner Barton pointed out,  the market                                                                    
     has  indicated  what  they are  comfortable  with  this                                                                    
     level of  borrowing and if  we were to go  beyond that,                                                                    
     the  rating   of  the  airport  system   as  a  revenue                                                                    
     enterprise would  be in jeopardy  and it would  be more                                                                    
     difficult to sell such bonds.                                                                                              
                                                                                                                                
     In  all of  my interactions  with  the ratings  analyst                                                                    
     that cover  the airport  system as well  as underwrites                                                                    
     that  follow  the  state   generally  and  the  airport                                                                    
     specifically, they  have all  been of the  opinion that                                                                    
     it is still  reasonable and very doable  for the system                                                                    
     to undertake this level of construction activity.                                                                          
                                                                                                                                
SENATOR FRENCH asked how one  determines the expenses included in                                                               
a bond package.                                                                                                                 
                                                                                                                                
MR. BARTON  replied the  first determination is  whether it  is a                                                               
capital   improvement  project   or  equipment   for  a   capital                                                               
improvement project.  After that  is decided,  a meeting  is held                                                               
with the  airlines to go  through the non-operating  budget items                                                               
and come to an agreement on what the program would be.                                                                          
                                                                                                                                
2:07:45 PM                                                                                                                    
SENATOR FRENCwhether all of  the aforementioned improvements fall                                                               
under capital expenses rather than operating expenses.                                                                          
                                                                                                                                
COMMISSIONER BARTON responded that all  of the expenses that have                                                               
been put before the committee are capital expenses.                                                                             
                                                                                                                                
2:08:49 PM                                                                                                                    
CHAIR  HUGGINS remarked  there were  27 carriers  on the  list of                                                               
signatories  and asked  if  some of  them were  swept  up in  the                                                               
momentum.                                                                                                                       
                                                                                                                                
COMMISSIONER BARTON said:                                                                                                       
                                                                                                                                
     There is  no question, some  of them didn't  even vote.                                                                    
     They  were provided  a  ballot to  vote.  I think  that                                                                    
     there  were only  a total  of 15  or 17  votes for  the                                                                    
     highest   project.  Some   of  the   carriers  do   not                                                                    
     participate, but  the way that the  voting structure is                                                                    
     set up is that two-thirds  of them have to disapprove a                                                                    
     project for it to be  not approved. In other words, not                                                                    
     voting is  recorded as  approval. So  some of  them may                                                                    
     well have  thought this through and  understanding that                                                                    
     process, just  didn't bother to go  through the process                                                                    
     of voting.                                                                                                                 
                                                                                                                                
CHAIR  HUGGINS asked  whether it  is  possible that  a number  of                                                               
carriers could  go away  and thus cause  general fund  dollars to                                                               
have to be used on the bonds process.                                                                                           
                                                                                                                                
COMMISSIONER BARTON said  these bonds are insured  and no general                                                               
fund  dollars are  at risk  since  the insurance  will cover  any                                                               
failure on the part of  the signatories. Secondly the probability                                                               
of carriers going  away is higher than that of  the markets going                                                               
away.  If  an individual  carrier  leaves  the Anchorage  market,                                                               
somebody would replace it.                                                                                                      
                                                                                                                                
2:12:42 PM                                                                                                                    
SENATOR COWDERY asked whether  the pavement construction problems                                                               
associated with non-layered pavement have been corrected.                                                                       
                                                                                                                                
COMMISSIONER BARTON responded they  have been corrected. He asked                                                               
his assistant to explain the cause of the problems.                                                                             
                                                                                                                                
MR. EBERLY said he did not know.                                                                                                
                                                                                                                                
2:14:50 PM                                                                                                                    
CHAIR HUGGINS remarked  highways in Alaska have  a five-year life                                                               
expectancy. He asked  what is the lifespan of  Alaskan runways as                                                               
compared those of the Lower 48.                                                                                                 
                                                                                                                                
MR EBERLY replied:                                                                                                              
                                                                                                                                
     A lot  of the  life expectancy  of a  runway has  to do                                                                    
     with the volume  and weight of the  aircraft using that                                                                    
     runway; it has  a lot to do with the  materials used to                                                                    
     build the runway.  I  believe that the Fairbanks runway                                                                    
     is in excess  of 30 years old and that  is why they are                                                                    
     going through  a major reconstruction effort.   Here in                                                                    
     Anchorage I would expect a  runway to last from four to                                                                    
     seven years.                                                                                                               
                                                                                                                                
SENATOR  COWDERY  moved SB  153  from  committee with  individual                                                               
recommendations  and  attached  fiscal   notes.  There  being  no                                                               
objections, the motion carried.                                                                                                 

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