Legislature(2001 - 2002)
02/19/2002 02:15 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 19, 2002
2:15 P.M.
TAPE HFC 02 - 27, Side A
TAPE HFC 02 - 27, Side B
CALL TO ORDER
Co-Chair Mulder called the House Finance Committee meeting
to order at 2:15 P.M.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
MEMBERS ABSENT
Representative Jim Whitaker
ALSO PRESENT
Representative Gary Stevens; Patrick Gamble, President &
CEO, Alaska Railroad Corporation, Anchorage; Bill Leary,
Vice President of Finance, Alaska Railroad Corporation,
Anchorage.
GENERAL SUBJECT(S):
OVERVIEW: ALASKA RAILROAD CORPORATION
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 22nd Legislative Session, contact 465-
2156. After the 22nd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 02 - 27
SIDE A
000 Co-Chair Mulder Opened the House Finance Committee
meeting at 2:15 P.M. He noted that
testimony would be heard from the Alaska
Railroad Corporation.
ALASKA RAILROAD
CORPORATION
110 PATRICK GAMBLE, Distributed handouts to Committee
PRESIDENT AND CEO, members. [Copy on File]. Major Gamble
ALASKA RAILROAD noted that the vision of the Railroad is
CORPORATION to build a great railroad across the
Greatland.
236 Major Gamble Provided a history of the Railroad. The
railroad was started in 1904 and hence
went bankrupt. The next attempt was in
1910. In 1915, U.S. Congress decided
that the U.S. would step in and build the
remaining railroad track. That took 8
years and $60 million dollars and the
railroad had no name. In 1923, it was
decided that the dog-team would always be
the mode of transportation in the State
of Alaska.
428 Major Gamble Discussed that the railroad was essential
during World War II. Towns developed
along the railways and those locations
were identified as the area grew.
Eventually the growth moved across the
"tracks".
556 Major Gamble In 1970, something happened with the
Alaska railroad. The money went to
freight. Passenger service was spun off.
Amtrak took that over. There is great
interest in the railroad in the lower 48
states. The Alaska Railroad never moved
far from the original intent. Passenger
service is fundamental to the Alaska
Railroad. The passengers move over the
same rails that the freight goes. He
pointed out that there is a lot of money
spent on the ties and the rails.
806 Major Gamble Alaska railroad maintains its uniqueness.
Only recently, there have been articles
in trade journals recommending broader
passenger service for railroads. That
chapter is now opening up to Alaska.
910 Major Gamble Noted that passenger service is
subsidized through federal dollars.
Freight service is not subsidized at all,
which is difficult.
937 Major Gamble Spoke about the demise of the railroad in
the lower 48. He commented about with
the opportunity occurred to transfer the
Railroad to the State of Alaska system.
It took place for $22 million dollars.
He mentioned the first years operating
budget of $11 million dollars. That was
the last time that the railroad took
money from the State. At that time it
essentially became privatized. It is
currently unionized with five unions.
Privatized made for incentive of net
profit off the net earnings. That money
pays for the operating costs and the
account for paying the employees. The
incentive is that those dollars generated
go toward safety, better work place for
employees and security for the public.
1232 Major Gamble Continued, the transfer language written
in 1983 was well constructed. Those that
wrote that language were very careful
with the language that was used. The
structure established was complicated,
which argues against the railroad being a
private association.
1344 Major Gamble The framers gave the railroad 36,000
acres half of which is privatized. Half
of the half is currently leased and
provides the net earnings of the
railroad. In 1985, the railroad was set
up and structured in order to change the
way it was doing business. For several
years, the railroad was under-funded.
Additionally, deferred maintenance was
under funded. It was in 1995, that
Governor Sheffield noticed that there was
money, which the railroad should have
been eligible for, in order to rebuild
the catch-up programs. The railroad is
currently in the catch-up mode to produce
newer ties and ballasts. A process which
has worked well.
1639 Major Gamble Commented that the challenges never stop.
He pointed out that this was the 1st year
in the railroad history that there was
not a derailment in Alaska.
1708 Major Gamble Itemized the revenues received by the
railroad.
1811 Major Gamble Commented on what the railroad is today.
It is a State entity. Every citizen has
a share. The railroad has community
responsibilities.
1950 Major Gamble Understands how essential it is to pay
attention to what the people in the
communities want.
2054 Major Gamble Addressed the reputation of the railroad.
He noted that it would be inconceivable
to build if the community does not want
it. It is essential to be on the ground
floor of the planning process, building
consensus. The railroad has a stake in
the outcome. There are many projects
listed in the handout, which require
dialogue along with the communities.
2243Major Gamble Partnering is important as a State
` entity. He added that leasing is also an
important concern. Some leases go to
international customers. There is also a
larger permitting area. It is the
railroads responsibility to know who and
what is being dealt with and then
accessing the long-term ramifications.
He added that it is essential to follow
the State guidelines and ethic rules.
2423 Major Gamble Noted that the Governor appointed the
Board of Directors as the buffer between
the President of the Railroad and the
State.
2451 Major Gamble Commented on the relationship between
both State and private entities. He
noted that the labor force, which the
railroad provides, is a quality of life.
2537 Major Gamble Advantages of being quasi-private, which
help to build incentive by innovators.
Innovation is not stifled. The Railroad
is financially innovative and with the
use of technology. Because the railroad
builds their own business, they can be
more creative.
2703 Major Gamble Addressed the maritime business that the
railroad is in.
2725 Major Gamble Stated that the railroad is an agent for
development. Where the curves cross is
the optimum point. The federal dollars
provide an attempt to clarify the
efficiency of the railroad. He noted
other developments and the rail link to
Canada; the commuter rail; the pipeline
support; support of the DOD and those
projects; the use of the railroad for the
conduit for the bond raising issue; and
opening and developing the initial early
access.
2956 Major Gamble The railroad, as an agent for
development, under the current model,
needs to be ready.
3050 Major Gamble In the development bottom line, the
passenger has to be safe and secure. To
respond to challenges, the railroad needs
to be responsive.
3134 Major Gamble The construction season is a large
concern and dynamic in movement. It has
been rigorous and well developed. The
railroad is an important component of the
transportation dynamic for the State of
Alaska. There is interdependence in the
movement mode within the State of Alaska.
There is an inter-model dependence. It
interplays with planes, trucks and
trains. To hamstring any of those
components would harm the other two. He
urged that the system be optimized.
People and freight are transferred when
it comes to Alaska, which is the essence
of the inter-model system.
3352 Major Gamble Mentioned capital funding and the
competing one another with the inter-
model funding needs.
3455 Major Gamble Spoke to the railroad as being a
component part of development for Alaska
transportation. Transportation needs to
take a regional approach. The inter-
model concentrates on "links".
3540 Major Gamble Spoke to the success of the Alaska
Railroad and how it addresses the core
competency.
3606 Major Gamble Alaska Railroad is Alaska owned and
operated railroad and it is a pride,
which is providing for progress. He
stressed that is what makes Alaska tick
and it is essential to transportation
within the State. It should stay in the
State and that it cannot be done long
distance.
3730 Co-Chair Mulder Questioned the Railroad being an agent
for development
3755 Major Gamble Commented that the railroad must be a
partner in the State and responsive to
customers. The challenge is to have the
capacity to answer the call when that
call comes. He thought that the railroad
could be built to hold that capacity.
The railroad is a fundamental niche in
development for the State.
3940 Co-Chair Mulder Asked about the mission statement.
3959 Major Gamble Referenced Page 1 of the handout. The
mission of the railroad is to be
profitable by focusing on safe, high
quality service to freight, passenger and
real estate customers. To foster the
development of Alaska's economy by
integrating railroad and railbelt
community development plans.
4137 Representative Asked about the number of moose killed
Foster this year by the railroad.
4155 Major Gamble Replied that this has been a low moose
kill year for the railroad this year
given the amount of snowfall.
4220 Vice-Chair Bunde Spoke to the deficit of the State. He
asked if there would be anytime in the
future in which the railroad would be
able to provide the State with a
dividend.
4329 Major Gamble Explained that if legislation were
passed, then the railroad would attempt
to accomplish it. He did not see
anything feasible like that in the next
few years. The railroad would need more
net earnings than they currently have.
They are currently unable to meet the
deferred maintenance needs. Washington
D.C. has provided $20 million dollars
annually. The railroad it playing catch-
up. It could be possible in the future.
He noted that he was concerned with the
potential loss of U.S. Congress money.
4525 Major Gamble Discussed the congressional money, some
of which comes fairly unencumbered. The
second type of money received by the
railroad is federal administration
dollars because the Alaska railroad is a
passenger railroad. That is a complex
formula depending on the number of
passengers hauled and urbanized zones.
TAPE HFC 02 - 27, Side B
4706 Co-Chair Mulder Pointed out that those dollars are
projected to drop.
4659 Major Gamble Spoke to the "sustain mode". He noted
that the railroad is in a transition mode
at this time.
4615 Representative Thought it was unlikely that the State
Davies would be able to make allocations to the
railroad. He mentioned the coal lands.
4451 Major Gamble Stated that it would cost $3 million
dollars per mile to build railroad and
$33 thousand to maintain it each year,
which would provide for maintenance,
small yards and signals. The capital
investment up front is significant. He
did not foresee any roadblocks for any
investment. The $33 thousand dollars
starts to accrue when the 1st spike is
driven. There will be a point when there
is an expense and then earnings. Things
will develop which cannot be predicted.
4147 Representative Spoke to the extension of the Alaska
Harris railroad and the advent of the ballistic
defense system at which time heavy
machinery that will need to be moved. He
asked where the railroad was going on new
development toward Fort Greeley since the
military projects are going to be
happening.
4019 Major Gamble There is little information on those
plans at this time. The original plans
did not rely on the rail. He did not
know the plans for Fort Greeley. He
wanted to find out more about the Fort
Greeley intentions.
3832 Representative Asked who were the land leases with.
Lancaster
3831 Major Gamble Replied most were international and some
were small businesses and then below that
are the permits.
3741 Representative Asked about the draft legislation before
Hudson the Legislative bodies. He mentioned the
local hire.
3654 Major Gamble Noted that there is third history working
on the railroad. Additionally, there are
many kids out of high school working on
the railroad. He noted the number of
tour guides on the railroads that come
out of the high schools. However, there
is not enough coming to work for the
railroad. Now there is a recruiter going
into the schools to educate those
students for the potential of the
railroad livelihood. They make better
employees and like living in Alaska.
3414 Representative Referenced the Alaska Marine Highway
Hudson System. When there is a vacancy, because
of the Union, the vacancy is sometimes
filled from out of State.
3341 Major Gamble Was not familiar with a case like that in
the railroad hire.
3325 Co-Chair Mulder Asked if there was a program with the
Alaska Vocational Center training people
for railroad hire.
3307 Major Gamble Acknowledged that it was the preference
that the employee has some pre-training.
He noted that some are hired with no
training. The employees are owed a piece
of training on the job and that is work
that has not been done very well. He
noted that they are in the process of
rebuilding their training program. He
referenced computer based trainings and
the community college component.
3130 Co-Chair Mulder Thought that the two would be able to
satisfy the needed space in the railroad.
3108 Representative Mentioned the University courses and the
Davies community college courses and how they
could meet the needs for the trainings
for the railroad. He added the
efficiency of the high school training
program.
2936 Co-Chair Mulder Referenced Page 12 of the handout - The
planned capital expenditures.
2907 Major Gamble Stated that the railroad did not
anticipate making $37.1 for the FY03
budget. The budgeting horizon does not
really move that far. The projects in
the out years are ambitious. There will
be tough decisions that need to be
decided. FY02 & FY03 will be "water-
shed" years for the Alaska Railroad. The
number is higher than can be met.
2735 BILL LEARY, VICE Stated that the internal generated funds
PRESIDENT OF would be similar as FY02.
FINANCE, ALASKA
RAILROAD
CORPORATION,
ANCHORAGE
2706 Co-Chair Mulder Commented that the dividend would
postpone the projects.
2652 Co-Chair Mulder Asked how the legislation could help get
there.
2638 Mr. Leary Replied external revenue. The fiscal
fate of the railroad is tied to the
State's economy. It is up to the
railroad to keep expenses at a manageable
level.
2558 Co-Chair Mulder Commented on the gap between the $12
million dollars versus the $37 million
dollar gap. He noted his concern. He
asked if that was the way business was
usually done.
2527 Major Gamble Did not believe that the State could do
anything to help the railroad. The
railroad is a "slave" to what is
happening with the State's economy.
There is a measurable dam of hope. The
net earnings can only be so much. The
net earnings grow, however, the expenses
are growing faster than the revenues.
That is the trouble with the net earnings
versus the expenses. The operating
ratios are not good for the railroad.
The ability to go out and lease the land
is essential.
2302 Co-Chair Mulder Asked if the deferred maintenance and
depreciation was a sinking fund.
2243 Mr. Leary Replied that there is not a "sinking
fund". The historic way has been to "pay
as you go".
2213 Major Gamble The railroad has protected and preserved
its on going cash flow.
2151 Co-Chair Mulder Thought that the true value of having
depreciation is having a "sinking fund"
in order to continue to do business.
2124 Representative Pointed out that they have a mission and
Lancaster five-year forecast which is more than the
legislature has.
2103 Co-Chair Mulder Noted the Governor's proposal to help
spur the gas pipeline.
2000 Major Gamble Replied that was not his field of
expertise. He noted that it is "big"
financial business. He added that the
research done by the Governor, the idea
of using the railroad as a conduit, is a
classic idea, however, the railroad will
be "bumped" up to create revenue. It
could require a bigger hire. When the
dust settles, the railroad will need to
put together a bond deal. The railroad
will be very busy to do justice to the
deal. The deal is being taken very
seriously.
1814 Major Gamble Thought that the concept indicates the
potential value of the railroad. The
transfer language has been done well.
The concept is good by keeping the track
capacity for whatever comes. Hopefully
it will be profitable for the railroad.
It has a potential to create very much
for the good of the country. He noted
that the Alaska Railroad supports the
project. A lot of homework will need to
be done if the project happens.
1600 Major Gamble Continued that he too is waiting to see
if the Board would approve the bonds and
the project. He voiced caution on any
proposed projects and the cooperative
working of the Legislature and the
Governor. He acknowledged that this is
not a simple project.
1505 Co-Chair Mulder Asked if the Board of Directors has taken
a position.
1450 Major Gamble Stated that the board has not taken a
position. He noted that they hoped for
success.
1432 Representative Spoke to connecting the Canadian rail
Hudson system.
1351 Major Gamble Stated that the Alaska Railroad does not
have any contact with the Canadians. He
noted that they feed off the "contacts".
There have been office visits and
debriefs regarding these concerns between
the two countries. From a railroad
perspective, the concern is pushing
forward for development. Alaska only has
so many opportunities. The resources
will be at the forefront of those
decisions. He commented that the idea is
not going to go away. It could be a
project for the railroad. It could come
at the same time as other projects for
the railroad.
952 Representative Applauded the railroad for the
Hudson considerations being addressed.
926 Major Gamble Commented that the physical movement of
materials is a delicate task. The
capacity of taking on additional jobs has
not been adequately considered. Other
considerations to be determined are the
bridges and the amount of tonnage that
they can handle. Projects as proposed
could accelerate the catch-up.
807 Co-Chair Mulder Agreed that it could cost money at the
front end to get the money at the rear
end. He addressed the financial
commitment of the railroad.
733 Major Gamble Referenced the type of land, the fair
market value and the leased value. The
idea given to the alternative sections of
land is a major consideration. He noted
that the railroad charge fair market
value for a lease.
540 Co-Chair Mulder ADJOURNMENT: The meeting was adjourned at
3:47 P.M.
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