Legislature(1997 - 1998)
02/25/1998 05:10 PM House ITT
| 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
HOUSE SPECIAL COMMITTEE ON
INTERNATIONAL TRADE AND TOURISM
February 25, 1998
5:10 p.m.
MEMBERS PRESENT
Representative John Cowdery, Chairman
Representative Eldon Mulder
Representative Gail Phillips
Representative Joe Ryan
Representative Kim Elton
Representative Reggie Joule
MEMBERS ABSENT
Representative Pete Kott
COMMITTEE CALENDAR
HOUSE BILL NO. 432
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date."
- HEARD AND HELD
* HOUSE BILL NO. 382
"An Act relating to international airports revenue bonds; and
providing for an effective date."
- BILL HEARING CANCELLED
(* First public hearing)
PREVIOUS ACTION
BILL: HB 432
SHORT TITLE: AIRPORT REVENUE BONDS
SPONSOR(S): REPRESENTATIVES(S) COWDERY
Jrn-Date Jrn-Page Action
02/18/98 2353 (H) READ THE FIRST TIME - REFERRAL(S)
02/18/98 2353 (H) ITT, TRANSPORTATION, FINANCE
02/24/98 (H) ITT AT 5:00 PM BUTROVICH RM 205
02/24/98 (H) MINUTE(ITT)
02/25/98 (H) ITT AT 5:00 PM BELTZ ROOM 211
WITNESS REGISTER
JOE SPRAGUE, Marketing Director
ERA Aviation
6160 Carl Brady Drive
Anchorage, Alaska 99502
Telephone: (907) 248-4422
POSITION STATEMENT: Testified on HB 432.
GEORGE KING, Airport Financial Consultant
and Bond Issue Advisor
Hudson AIPF
730 Fifth Avenue, Ninth Floor
New York, New York 10019
Telephone: (212) 333-8684
POSITION STATEMENT: Answered questions on HB 432.
KURT PARKAN, Deputy Commissioner
Department of Transportation & Public Facilities
3132 Channel Drive
Juneau, Alaska 99801
Telephone: (907) 6977
POSITION STATEMENT: Commented on HB 432.
DON HARRIS
Box 49
McGrath, Alaska
Telephone: Not Provided
POSITION STATEMENT: Testified on HB 432.
BILL ELANDER, President and Chief Executive Officer
Anchorage Convention and Visitors Bureau
524 West 4th Avenue
Anchorage, Alaska 99501
Telephone: (907) 276-4118
POSITION STATEMENT: Testified on HB 432.
MORT PLUMB, Director
Anchorage International Airport
P.O. Box 196960
Anchorage, Alaska 99519
Telephone: (907) 266-2525
POSITION STATEMENT: Testified on HB 432.
JOHN UNGER, Controller
Anchorage International Airport
P.O. Box 196960
Anchorage, Alaska 99519
Telephone: (907) 266-2541
POSITION STATEMENT: Testified on HB 432.
DONN KETNER, Architect
CCS
3884 Caravell Drive
Anchorage, Alaska 99502
Telephone: (907) 266-1693
POSITION STATEMENT: Testified on HB 432.
DAVID EBERLE, Director
Construction & Operation, Central Region
Department of Transportation & Public Facilities
P.O. Box 196960
Anchorage, Alaska 99519
Telephone: (907) 269-0780
POSITION STATEMENT: Testified on HB 432.
ACTION NARRATIVE
TAPE 98-3, SIDE A
Number 0001
CHAIRMAN JOHN COWDERY called the House Special Committee on
International Trade and Tourism meeting to order at 5:10 p.m.
Members present at the call to order were Representatives Cowdery,
Mulder, Phillips, Elton and Joule. Representative Ryan arrived at
5:17 p.m. Representative Kott was absent.
HB 432 - AIRPORT REVENUE BONDS
Number 0033
CHAIRMAN COWDERY said the committee would be considering HB 432,
"An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date." It
was the intention of the committee to take public testimony and ask
questions of the airport administration. He said that HB 432 would
provide authorization for the state to issue up to $280 million in
revenue bonds to fund improvements at the Anchorage International
Airport (AIA). The amount of the bonding authorization may change
depending on what the committee learns in the legislative process.
Chairman Cowdery said he sponsored HB 432 because he supports
development and improvements of the airport, but it is the
committee's responsibility to develop a complete and accurate
record.
Number 0056
CHAIRMAN COWDERY called an at-ease at 5:13 p.m. due to a
teleconference malfunction.
CHAIRMAN COWDERY called the meeting back to order at 5:18 p.m. He
asked Joe Sprague from ERA Aviation to present his testimony at
this time.
Number 0081
JOE SPRAGUE, Marketing Director, ERA Aviation, testified via
teleconference from Anchorage. He was representing Charles
Johnson, President of ERA Aviation and was testifying on behalf of
ERA to present their views on the Administration's Anchorage
Airport Terminal Expansion 2005 Project. He said, "First and
foremost, allow me to make one point very clear. ERA supports
terminal renovation and expansion at Anchorage. We always have and
we believe the time has come to embark on a businesslike plan for
renovation and expansion that is appropriate to legitimate needs.
We believe that the Administration's proposed project could serve
as a broad concept for long-range planning for future needs if and
when they arise."
Number 0101
MR. SPRAGUE continued, "From what position does ERA share its
views? ERA enplanes approximately 10 percent of the domestic
passengers using Anchorage International Airport. We spend much of
the year as the second busiest carrier at the airport, behind only
Alaska Airlines in terms of enplanements. Many of the nearly
450,000 passengers carried annually by ERA are not visitors, but
residents of the state. Additionally, we employ over 250 Alaskans
at the airport. This past November we voted against the terminal
expansion 2005 project as presented by the Administration on the
signatory airline ballot. A copy of our cover letter and ballot
have been distributed to you and in our letter attached to the
ballot, we stated that the ballot does not include alternatives to
the massive and costly project that we can be comfortable with. We
are limited to one source of funds and a minimum size and price for
the project. In that vote, a total of 12 signatory airlines voted
against the project. Only 10 voted for it and 3 did not vote - 12
airlines voted against it, 10 for it."
Number 0120
MR. SPRAGUE further stated, "Today, as then, the Administration
freely admits that the project, as proposed, still remains only a
concept. This concept is still in its infancy and the estimated
costs can only be best guesses, to be changed later by yet a
merging design concept. Therefore, in view of our commitments to
our customers, our fellow citizens, our employees and our
shareholders we have no choice but to continue opposing the project
as presented by the Administration. In the letter accompanying our
vote, we also encouraged and offered to participate in a
cooperative effort involving representatives from all the terminal
users to establish terminal renovation and expansion plans that
might better meet the needs of all concerned. We stand by that
offer."
Number 0133
MR. SPRAGUE continued, "We agree that the airport is a tremendous
economic benefit to the citizens of Anchorage and the entire state.
We also agree we should plan and build for the future. We must all
keep in mind, however, that the cost of these improvements will
ultimately be borne in large measure by the citizens of our state.
These costs should be thoroughly and rigorously justified. There
are questions surrounding this project. How good are the analysis
offered in support of this project? For example, although
passenger traffic at Anchorage has increased over the last ten
years, it has remained essentially flat since May of 1997. What
will continued failure to meet growth projections do to the cost
that all of us must bear. There are abundant examples, both within
Alaska and across the nation, of how quickly airline passenger
traffic levels can change and what happens to business at airports
when costs skyrocket due to over-building. Additionally, the
Administration's plan proposes to increase airline lease space by
75 percent and concession space by 100 percent but has gathered no
commitments for any of this additional space."
MR. SPRAGUE said, "As I mentioned earlier we do believe the concept
being presented by the Administration has some merit as a potential
long-term master plan. Last June in fact, all participating
airlines including United, Delta, Alaska Airlines, Northwest, ERA,
PennAir and Northern Air Cargo favored an incremental approach to
terminal renovation and expansion. We were on a course to
establish priorities and do the most important things first. In
July, the airport administration proposed a $33 million incremental
approach. However, by October, the number was $191 million; in
November, it was reduced to $164.5 million; last month it was $235
million; and now the legislature is finally being asked to
authorize bonding for $204 million. Whatever the final cost, this
is a major investment. Again, one that merits careful
consideration and reasoned discussion among airport users, airport
staff, legislators and other community leaders. We all want a
modern, efficient airport terminal. The needs of our present
facility are readily apparent. C Concourse was built in the early
1950s and renovation studies have been ongoing for at least the
last ten years. There are legitimate needs in the main terminal
baggage handling areas and ticket lobby areas."
Number 0175
MR. SPRAGUE stressed, "Before rushing forward however, we must
develop a sound business plan that prioritizes problem areas and
identifies cost effective solutions. We must learn from the
experiences of others, also. There are examples around the country
of airports that overexpanded; places like San Jose and Denver,
where high terminal costs resulted in downturns in airline
activity. We must consider this possibility in Anchorage. The
Administration has done a good job attracting cargo carriers to
Anchorage. These carriers employ many hundreds of Alaskans and
there are good prospects for more cargo carriers to come. These
carriers, however, will pay a substantial portion of the terminal
expansion costs; perhaps as much as 30 to 40 percent for the next
25 years. How will this affect the decisions of potential new
cargo carriers, or for that matter, the existing ones."
Number 0188
MR. SPRAGUE concluded, "In closing, we believe the Administration's
Terminal Expansion 2005 concept merits serious and careful
consideration. We have the expertise right here in Alaska to
evaluate and prioritize the legitimate needs at the Anchorage
International Airport and to come up with sound, fiscally
responsible plans to meet those needs. This is an opportunity that
we cannot afford to miss and we should do it right."
Number 0197
REPRESENTATIVE JOE RYAN asked if he was correct in assuming that
FedEx and UPS don't do any breakdown of loads or redistribution but
they use the Anchorage International Airport for a local fuel stop
and for whatever local freight comes into Anchorage.
MR. SPRAGUE said he would defer that question to the airport
administration since he is no expert on the plans of FedEx and UPS.
Number 0212
CHAIRMAN COWDERY asked what percentage does ERA contribute to
airport revenues.
MR. SPRAGUE replied he didn't have that figure, but the larger
airlines - Alaska, United, Delta - contribute in total about 85
percent, so obviously ERA would be in the smaller percentage. He
added that ERA does, however, carry a significant portion of the
traffic. Often times throughout the year, ERA is the number 2
carrier in terms of the number of passengers boarded at the
airport.
CHAIRMAN COWDERY noted that Mr. Sprague's earlier testimony
indicated that more carriers voted against this project than for
it. He asked how the voting process was set up so the majority
doesn't rule.
MR. SPRAGUE said that question would perhaps be more appropriately
directed to the airport administration or Mr. Argue who addressed
the committee the previous evening. It was his understanding that
it takes a two-thirds majority vote to disapprove a project, so in
this case even though the majority number did vote to disapprove,
it was not a two-thirds majority, therefore, the vote carried to
approve the project.
CHAIRMAN COWDERY inquired if this was a common way of doing things
in other airports.
MR. SPRAGUE was not aware of how it's done at other airports.
CHAIRMAN COWDERY asked if ERA's landing fees had increased or
decreased in the last two or three years.
MR. SPRAGUE said there had been some fluctuation in the landing
fees; both increases and decreases, but he wasn't sure exactly what
they had been. He added that ERA has been presented with cost
estimates that landing fees would certainly increase with this
project over the next few years.
Number 0239
REPRESENTATIVE GAIL PHILLIPS asked if it was Mr. Sprague's
understanding that several of the carriers voting in the
affirmative based their votes on the institution of the passenger
facility charge.
MR. SPRAGUE said that was his understanding.
REPRESENTATIVE PHILLIPS asked of the 10 carriers voting to approve
the project, how many voted with that stipulation on their vote.
MR. SPRAGUE responded there were multiples, but he didn't have the
exact number.
REPRESENTATIVE PHILLIPS asked if those votes were counted as
straight "yes" votes.
MR. SPRAGUE responded in the affirmative.
REPRESENTATIVE PHILLIPS asked if this project were to go into
place, and several of the carriers that voted for this project
decided to cease doing business in Anchorage, what would the impact
be on ERA.
MR. SPRAGUE explained the airline operation of ERA only operates
within the state of Alaska with Anchorage being the only hub.
Therefore, if there were fewer carriers paying for the overall cost
of this project, ERA doesn't have a choice of going elsewhere;
therefore, ERA would pick up additional costs.
Number 0260
REPRESENTATIVE RYAN asked if ERA paid landing fees and rental fees
for the ticket counter and gate space.
MR. SPRAGUE responded affirmatively.
Number 0264
REPRESENTATIVE ELDON MULDER asked Mr. Sprague if he thought the
airport needed to be expanded or renovated.
MR. SPRAGUE said, "Yes, we certainly do."
REPRESENTATIVE MULDER inquired if the C Concourse and ticket
counter space occupied by ERA was sufficient.
MR. SPRAGUE responded that in terms of sufficient, the available
space ERA has on the C Concourse is certainly sufficient; they are
not seeking additional space in a renovated C Concourse. However,
the other discrepancies with C Concourse in terms of age and
condition are well known and ERA would not argue there certainly
needs to be some improvements.
REPRESENTATIVE MULDER asked if ERA would be looking for additional
ticket counter space if the renovation were to occur.
MR. SPRAGUE respond that ERA would not be seeking any additional
space.
Number 0278
REPRESENTATIVE PHILLIPS said, "I'd like to put something on the
record. One of my first jobs in Anchorage, quite a few years ago,
was working at the ticket counter as a ticket agent for Western
Airlines in the basement of C Concourse, so that's been a lot of
years."
CHAIRMAN COWDERY asked if there were further questions of Mr.
Sprague. There being none, he asked George King if he had any
remarks.
Number 0286
GEORGE KING, Airport Financial Consultant and Bond Issue Advisor,
Hudson AIPF, said he had presented his testimony at the previous
meeting and was available to answer questions. In answer to the
question that had been raised at the previous meeting;
specifically, what is the impact in dollars of a 100 basis point
move, he had looked at that question from two perspectives. First,
if the $179 million issue had a 100 basis point move, the total
additional interest paid over the life of the transaction would be
about $33 million and if the $25 million portion had a 100 basis
point move, the additional interest paid over the life of the
transaction for just that $25 million portion would be about $4.6
million.
Number 0306
CHAIRMAN COWDERY questioned if, in fact, the 100 basis points came
in existence before the bonds were sold, was it Mr. King's opinion,
the project would have to be scaled back.
MR. KING said no, actually in the financial model used in
calculating the rates and charges estimates that were given to the
airlines, they used interest rates at that time which are quite
close to the rates which are in effect today with a 100 basis point
cushion. So, a 100 basis point move would be about at the same
point when the model was run back in October with that assumption.
He added, "And if we were able to finance at today's rates, our
rates and charges would be lower than the estimates that were in
the financial model. When we ran the financial model, we thought
it was only fair to include a bit of a cushion in that assumption."
Number 0325
CHAIRMAN COWDERY asked what percentage of the package is for
contingencies of that nature?
MR. KING said he didn't have that exact number, but he would be
happy to furnish the committee with that information.
CHAIRMAN COWDERY questioned how much of the finance plan would be
used to pay the investment brokers, bankers, or bond counselors.
MR. KING responded the cost of issuance, which is the aggregate
amount of the investment bankers and lawyers, will be fees that are
negotiated by the state bond committee which is the entity that
authorizes the actual issuance of the bonds. He presumed those
fees would be consistent with the going rates for those services at
the time the services are engaged.
Number 0339
CHAIRMAN COWDERY asked if Mr. King had a ballpark estimate of those
fees.
MR. KING estimated that for an issue of this size, it would be a
little more than 1 percent of the aggregate transaction when all
the costs are taken into consideration as a whole. He added that
it would be the correct purview of the state bond committee to
negotiate those prices with the firms chosen to do the work because
there are quality considerations, as well as price considerations
that enter into those selections.
Number 0351
CHAIRMAN COWDERY asked how much Mr. King was being paid and does
the amount increase or decrease with the size of the project.
MR. KING stated his rate is approximately $145 per hour and his
compensation does not increase or decrease with the size of the
project. He further stated his job is to give the airport good
information so the airport can make good decisions in terms of what
to do.
CHAIRMAN COWDERY asked if Mr. King's job came about by the
competitive bid process?
MR. KING replied yes, it did. He is a subconsultant to the RISE
Alaska team which is headed by Leif Selkregg, and that team was
selected in a competitive bid process.
Number 0362
REPRESENTATIVE PHILLIPS remarked that in November the financing
plan showed a bonding requirement of $177 million and today it has
increased to $204 million. She asked Mr. King to explain the
difference in the package.
MR. KING responded the package has not changed. He said, "I think
one of the comments I would have is, as I was listening to the
testimony before about the reference to the numbers -- some of the
numbers given out -- 191, 164, 235, 204, 177 et cetera, is that
these numbers are all the same project, they're just taking
different definitions. It's sort of like saying apples and oranges
and bananas. They're all numbers that relate to the project, but
they're all taken in a different context."
REPRESENTATIVE PHILLIPS asked if the committee could use the $177
million figure to work with?
MR. KING asked for the citation from which the $177 million was
taken.
REPRESENTATIVE PHILLIPS responded it was from November's plan.
Number 0379
KURT PARKAN, Deputy Commissioner, Department of Transportation &
Public Facilities, said he believed Representative Phillips was
referring to the bottom of the third column on page 2 of the Plan
of Finance dated November 5, 1997, which indicates $176.6 million.
MR. KING explained that number is the result of about six different
things. He said, "The total cost of the project in 1997 dollars is
and always has been in these numbers that we've been running,
$190,800,000 or $191 million if people are rounding. That is the
starting point. There is an entry next to that, $26.3 million
which represents the federal highway allocation by the state and
that gets you to the airport cost of the project in 1997 dollars of
$164,500,000. So, those are three numbers which are talked about
a lot - the 191, the 26.3 and the 164.5, but they all are
consistent and they all are just different ways of expressing the
same project."
REPRESENTATIVE PHILLIPS interjected she was trying to arrive at the
difference between the $176.6 million which is shown as the needed
financing in November versus the $204 million that's shown today.
MR. KING said the $176.6 million shown in November is the end
result of starting with the total project cost and making several
assumptions about how the actual financing plan would play out.
For example, there's an assumption of 24 months of capitalized
interest and what that would cost. That 24 months of capitalized
interest assumption is based upon the assumed interest rates that
were in the financial model back in November. The next line item,
the credit construction fund earnings, is a number that's based on
a couple of assumptions. First, that a single bond issue would be
done, which as he explained in the previous meeting, would require
the approval of the Internal Revenue Service to allow for a single
bond issue. It's based on the assumption of an interest rate for
the construction fund earnings over that five year period and it's
based on the assumed drawdown schedule of the funds during that
five years because all of those considerations impact the earnings.
He further explained the next assumption, line item financing costs
including bond insurance is an aggregate number which includes the
underwriters compensation, the attorneys' compensation and the
predominant number is the cost of the municipal bond insurance
policy, which is what would be used to get the triple A rating and
the lowest cost in the market.
Number 0427
MR. KING said the important thing about all those assumptions is
they add up to the $230 million of total all in costs and there are
a number of assumptions he refers to as subtotal subtractions, that
yield the $176.6 million. He noted the $176.6 million is basically
calculated as an estimate of what the real actual financing would
cost if all the described assumptions came into play.
Number 0432
MR. KING continued to explain the $204 million was submitted
because when an authorization is done, an outside parameter is set
which cannot be exceeded and it's important in that sort of a
context to have the outside parameter of what could possibly
happen. The outside parameter of what could possibly happen would
be if, for example, the IRS said we could not finance as one bond
issue and if it had to be broken up into two bond issues, there
would not be the construction fund earnings for the period of time
which was originally assumed, so the construction fund earnings
would drop substantially and the capitalized interest would not
necessarily be the same as assumed. Also, the financing costs
would increase because there would be two transactions instead of
one. He said all of those are examples of how things could change
from the estimate of what we could do back in November. He said,
"So taking that into consideration and taking into consideration
that we're setting an outside limit that we cannot under any
circumstances exceed because it is laid out in the legislation, the
decision was made to take the total financing costs all in of $230
million and subtract a round number of $26 million representing the
highway money from the $230 million to get to the $204 million."
He apologized for the technical nature of the description, but the
subject itself is somewhat technical.
Number 0456
REPRESENTATIVE MULDER said, "I've got a question in relation to the
security of this debt in relation to the fact that you've done the
modeling for this plan and it's based upon the assumption that
there's going to be a percentage of growth in airport traffic -- I
don't know, something maybe in the 5 or 6 percentage range or
something like that -- and consequently, there's projection of new
gates, new ticketing, new baggage claim, new retail. How secure
is this debt in the sense of what happens if the growth slows,
stagnants, some of these new gates aren't purchased -- how much
flexibility is in this plan, in your modeling?"
MR. KING said first the model uses the assumptions which he was
given in areas where he does not generate the assumptions himself.
In short, he used the activity levels in terms of the enplanement
growth which was generated by the consultants that were hired who
specialize in that area. Those consultants are TAMS consultants
and Joel Hirsh (ph), both of whom are recognized experts. In
addition, those enplanement growth assumptions generated by those
experts, were consistent with the enplanement assumptions the
Federal Aviation Administration (FAA) has. In answer to the first
part of Representative Mulder's question, he used enplanement
assumptions given to him, but he was comfortable with the
assumptions because they had been developed with a great degree of
care by people who were qualified to make those assumptions. To
the second part of Representative Mulder's question, he said if the
assumptions are correct, the financial model shows that the 2002
rates and charges at Anchorage after the completion of this project
would be competitive with the triple AE, which is a national study,
averages on a national level for the 1995/1996 rates and charges,
which is the most recent national study. If the enplanement
numbers were wrong and the charges were higher, he believed there
is still a comfortable amount of room to have rates and charges
which are higher than the model projects, but still equal to or
less than what the national averages will be for similar sized
airports in the year 2002.
Number 0492
REPRESENTATIVE MULDER asked if the model was predicated on having
all the retail space 100 percent occupied and all the gates 100
percent filled and utilized in order to meet the forecast.
MR. KING said, "No, and in fact that's a very good question because
in some earlier considerations internally within the group at the
airport, we had talked about that and we ended up using what we
consider to be some fairly conservative assumptions that relate to,
I think, approximately 80 percent occupancy in the beginning that
increases and we have those numbers, I believe they're in the back
of one of the gray books -- bear with me one second, I can give
that to you -- we assumed that the occupancy in the year 2002 would
be 80 percent; 2003 80 percent; 2004 83 percent; 2005 and
thereafter 89 percent. And the total vacant square footage that's
assumed for the long term, 2005 and thereafter, is 27,000 square
feet. There was a lot of discussion about these numbers because
you could say that they are conservative or you could say that
they're overly conservative, depending on your point of view, but
they certainly are conservative numbers and we're not assuming 100
percent occupancy for the model. I would say, however, that when
the consultants were designing the facility, they interviewed the
airlines that used the airport and had extensive discussions with
them about what their space needs would be and the facility was
designed in response to the feedback that the consultants got from
those discussions. So, again while I don't generate those numbers
that go in the model, I do review the information that's given to
me and as in the case of the enplanement, I felt comfortable that
the numbers were legitimate and were done carefully by people that
are experts in that business."
Number 0519
CHAIRMAN COWDERY asked Mr. King to stand by for additional
questions later on. He asked Don Harris from Anchorage to present
his comments.
Number 0521
DON HARRIS testified via teleconference and said he had been the
commissioner of the Department of Transportation & Public
Facilities from 1974 - 1979. When he left the administration, the
north/south runway at AIA was under construction, the international
terminal building was in the design phase and the A Concourse
extension had been built. The north/south runways, associated
taxiways and the international terminal building were completed
with surpluses in cashflow. At that time, the bond debt of the
airport was paid down to just under a half million dollars. He
believed those were the three most significant capital improvement
projects that have taken place at AIA in the last 20 years. He
said, "Yet, I was somewhat chagrined and within about four years of
time on the international terminal building expansion because at
the time we were contemplating it, I'd asked several times for
people to look ahead and see what we were faced in technology that
might have aircraft bypassing Alaska and the response I got was
that they didn't see anything in the future. The airlines, the
latest thing they were operating in long range capability, was the
SP model of the 747 but within four years they'd repowered the 747s
and they were able to overfly Anchorage and Alaska."
Number 0549
MR. HARRIS suggested to the legislature that what's being proposed
in this plan is probably excessive and it's been promoted with a
considerable amount of hype. It's his understanding that up until
July all the carriers were in agreement on the replacement of the
C Concourse project. Some of the carriers have indicated to him
they had no input beyond that time and now they're faced with the
project before the committee. He encouraged the legislature to
take some time to thoroughly evaluate how the space is being used
in the present terminal complex and other considerations before
giving the go ahead.
Number 0578
REPRESENTATIVE PHILLIPS asked Mr. Harris what his opinion was of
passenger facility charges.
TAPE 98-3, SIDE B
Number 0001
MR. HARRIS responded it appears to him that perhaps the Anchorage
facility either isn't being utilized to the extent that is
desirable, or perhaps the charges are too low. With the amount of
capital that's been put into the Anchorage airport, he felt it
should generate enough fees to take care of the future capital
improvement program.
Number 0009
CHAIRMAN COWDERY asked Mr. Harris if he thought there was a need
for the project and if so, should it be downsized.
MR. HARRIS responded it's his belief that if a program is agreed to
by all the carriers, it's worthy of going ahead with. He added,
"But to go into a financing -- I think I heard last night that we
had roughly $33 million of current debt -- and to authorize that
for another $175 million to go into the kind of a program that's
contemplated here, I think that would be a mistake. I think that
you should review all of the possibilities and I really believe
that you can do a terminal expansion and related improvements with
the surpluses, the cashflow, that include the funds that come from
the FAA through the Airport Improvement Program (AIP) and the
discretionary funds from FAA."
Number 0036
REPRESENTATIVE RYAN shared some of his experiences from time spent
working in the aviation industry. He noted the proposal is based
on passengers not freight, which is where the revenue is. Inasmuch
as the entire proposal is predicated on expansion for passengers,
he asked where the revenue was going to come from.
Number 0061
BILL ELANDER, President and Chief Executive Officer, Anchorage
Convention and Visitors Bureau (ACVB), testified on behalf of the
board of directors of the Anchorage Convention and Visitors Bureau
which represents 1360 businesses, most of which are in
Southcentral. He said the board of directors had reviewed the
airport expansion project and unanimously supported not only the
2005 project, but would like to see consideration given to the 2015
project for future development. He said the ACVB looked at it
primarily from the passenger standpoint, and it was somewhat their
mistake in belief that it was ultimately the passengers that would
pay for the terminal, but now it appears that's not the case. He
noted that some carriers are being added while others are dropping
out. Reno Air is strong, Southwest Airlines left, TWA is back in,
Northwest is coming in on international flights direct from Tokyo,
which indicates a very strong growth pattern.
MR. ELANDER said the world is in an age of travel. The
deregulation of airlines has given a lot of freedom to airlines to
go where the demand is. It is for this purpose, the ACVB believes
the expansion is essential; the demand is growing and will continue
to be there, so immediate action should be taken to try to bring
Anchorage International Airport up to beyond the 40 percent
capability it should have for the future. He said that travel is
here to stay; it is the largest business in the world today.
International travel will begin to again appear into the Anchorage
airport for the right reasons; not for refueling, but because
passengers will want to get off in Anchorage.
Number 0098
CHAIRMAN COWDERY asked Mr. Elander what his position was on
passenger facility charges.
MR. ELANDER said the passenger service charges in Anchorage are
probably far less than most airports he has flown into around the
country. Airport personnel outside of Alaska he has talked with
have indicated that passengers are willing to pay for a proper
terminal. It's frustrating for individuals coming into Anchorage
to face the congestion of the baggage claim area as it is for
outbound passengers in the ticketing area. He maintained that as
long as there's competition, there will be good air fares in
Anchorage.
CHAIRMAN COWDERY thanked Mr. Elander for his testimony and asked if
Mort Plumb was available to comment.
Number 0119
MORT PLUMB, Director, Anchorage International Airport, clarified
his statement from the previous meeting regarding an incorrect
figure. He said the correct figure is, as a gauge approximately $1
million per 1,000 linear feet of taxiway, not square feet.
Number 0127
REPRESENTATIVE PHILLIPS said it was her understanding the Anchorage
International Airport has collected over $14 million in prior years
for terminal design and related improvement projects. She asked if
that money was taken into consideration to reduce the $204 million
bond request. If not, what happened to the money, how much is left
and why wasn't it considered?
MR. PLUMB recalled that about $6.1 million was transferred and
included in Mr. King's calculation in the model. He asked John
Unger to further comment.
Number 0138
JOHN UNGER, System Controller, Anchorage and Fairbanks Airports,
said there had been three separate appropriations, adding up to
$14.5 million. The first appropriation was for $3 million which
was to study C Concourse and determine if it could be repaired,
replaced or what other options were available. There was a $4.5
million appropriation for a needs assessment study. A $7.2 million
appropriation a couple years ago was based on C Concourse being
torn down and included funds to build a warehouse for the building
maintenance people so they could begin to vacate C Concourse; it
was money to relocate tenants. He said basically out of the $14.5
million, $6.1 million would be available to go on with the
construction and design of the terminal, and the $6.1 million has
been reduced from the total cost of the bond package.
REPRESENTATIVE PHILLIPS asked if the $14 million wasn't just for
terminal design, but it was for general maintenance as well?
MR. UNGER said the first $3 million was to actually start the
studies on the existing problems with C Concourse and to make
determinations whether it was feasible to repair it and if not,
start taking steps to replace it. He knew that part of the money
was for studies and part of it was used to tear down a chimney on
C Concourse. He suggested that Donn Ketner could better address
the scope of those projects.
Number 0158
DONN KETNER, Architect, CCS, explained that he is the project
manager for the terminal portion of the terminal redevelopment
project. He said the status of the funds are as follows: The
original $3 million that was appropriated quite some time ago went
into a number of studies to evaluate the structural capacity of
Concourse C. A number of dangerous conditions that existed were
identified and some of the funds were used for construction to
correct some of those conditions, such as the masonry chimney
alluded to by Mr. Unger. Also, a program was put together to
vacate and demolish Concourse C independent of the terminal
expansion program. That was the $7.2 million that was requested,
and of that $7.2 million a new 20,000 square foot warehouse and
maintenance facility was constructed to move that function out of
Concourse C. He explained that administrative offices were in the
design process to replace offices and other tenant relocations and
at that time, it began apparent through some of the early studies
on the terminal expansion program that it would be prudent to hold
off on those improvements until such time as they could see where
the master plan for the terminal expansion was going.
Number 0179
MR. KETNER said some of those monies remain on the books. He said,
"We have also received approval by the Airlines Affairs Committee,
(indisc.) million of the original $7.2 million into the terminal
expansion program, so that represents part of the $6.1 million that
you see in the financial plan." He suggested that a financial
statement could be made available to the committee that would
identify when the funds were appropriated, what the funds were used
for, what funds remain, and the current amount in the terminal
expansion program.
UNIDENTIFIED SPEAKER: "I believe the first appropriation came on
the books in 1993 or 94."
Number 0193
REPRESENTATIVE MULDER commented that more than $3 million had been
spent studying potentials and opportunities and it appears to him
that it's Mr. Plumb's task to gain control of the money that is
being spent. A lot of money has been spent doing nothing to have
eight pieces of paper put before the committee in relation to a
work product, which didn't seem to be a very good return on the
investment thus far.
MR. PLUMB accepted the challenge.
Number 0206
REPRESENTATIVE PHILLIPS understood the airport system currently
holds over $36 million in unencumbered and unspent old capital
improvement project funds from prior years. If this is the case,
is this cash in the bank, was it collected from the airlines and
other airport users and why isn't it being used for this project.
Number 0213
MR. UNGER responded it is true the airport is holding $36 million
or $37 million of capital money that's been collected over the
years from the airlines for projects that have been appropriated
previously. He added, "Both airports went through an extensive
review this summer, because this was a big sticking point with the
airlines, WE went through project by project, came up with about $5
million or $6 million of money that they felt these projects had
either been completed or weren't going to be started and the money
was lapsed and basically refunded back to the carriers through this
year's landing fees. The remaining $36 million is projects that
both airport managers feel are ongoing and that these projects will
be completed. The Alaska International Airport System recently
adopted a capital project close out policy and basically what it
says is that as soon as an appropriation comes on the books, they
have five years to complete that project and the money will then be
closed out and any project older than five years that for some
reason hasn't been completed that the airport managers still feel
that they need cash, has to be presented to the commissioner's
office for their approval in order to keep that project alive
longer than five years."
REPRESENTATIVE PHILLIPS asked if there is $36 million in the bank
for ongoing renovation projects in the airport, why wasn't that $36
million applied to the expansion project being worked on now.
MR. UNGER said the reason was because these are totally separate
projects and have nothing to do with the terminal expansion.
REPRESENTATIVE PHILLIPS asked Mr. Unger to furnish the committee
with a list of those projects. She said, "With the scope of the
project that you have in front of us today, I can't imagine that
there is anything at the airport under the scope of the project
that you have presented, that wouldn't be covered.
MR. UNGER said the list would be made available for the committee.
He noted that quite a few of the projects are airfield improvements
and some are terminal improvement projects.
Number 0245
REPRESENTATIVE RYAN referred to the "Terminal Expansion 2005
Projects" document which indicates that in June 1997, the
Administration's preliminary construction costs estimates include
over 50 percent contingency which he believed to be excessive. He
asked if that was still correct.
MR. KETNER responded there are two contingencies built into the
program in the current estimate. One contingency is a 10 percent
change order contingency on construction. For new construction
there is a 20 percent change order contingency built in to the
estimate only for the portions of the terminal that are to be
renovated and there is an overall program contingency on the
project of 10 percent. So collectively, there is a 20 percent
contingency, including change order contingency.
Number 0261
REPRESENTATIVE RYAN, referring to the same document, said the
operating agreements with the airlines expire in two years and will
need to be renegotiated about the time the project comes on line.
He wondered what kind of guarantees that the same agreement or
better could be negotiated with the airlines; i.e., letters of
intent or signatory agreements?
MR. PLUMB said he believed the answer would be no.
Number 0275
REPRESENTATIVE NORM ROKEBERG said, "A follow up on the -- in terms
of the contingency amount, I'd like to get that clarified and
perhaps you could provide the committee with your calculations
because it's been my experience in the construction industry and
business, that you usually are doing contingency in line item
budget estimates which actually start compounding. So when you
talk about that component of the construction that's new
construction having a 10 percent change order there, and then with
a separate column, I take it, you'd have a 20 percent change order
for the renovation portion. But then you take that all together
and then you have 10 percent of that in your project contingency,
so somewhere there's a blended rate that comes out there and we'd
like to see the calculations."
Number 0288
DAVID EBERLE, Director, Construction & Operation, Central Region,
Department of Transportation & Public Facilities, said the 10
percent contingency relative to change orders is really a
contingency on the engineer's estimate of the estimated
construction costs for a given contract. There's a limit to the
accuracies of the engineer's ability to estimate, so on his
estimate, he adds 10 percent for that contract, not knowing what
the bid is going to come in at. He said that is a reasonable
amount to apply to a construction estimate. Above and beyond that,
there needs to an overall program contingency to be prudent and go
forward with the project. He stated, "You don't want to go into a
project with a zero overall program contingency because you may
have some unidentified needs that will come up during the actual
final development of the plan for the overall program." The other
estimates are basically known quantities, either Concourse C, known
ramp requirements. That's were the initial 10 percent comes in.
To a certain extent there is a compounding of those contingencies,
but it's not unusual and it's certainly is prudent to have
contingencies in both of those spots. In his opinion, the amount
of those contingencies is also a very prudent level, in his
experience.
REPRESENTATIVE ROKEBERG appreciated Mr. Eberle's explanation and
said the committee would like to review how the calculations were
made and to see the impacts of those numbers on the gross project
costs. He asked if the plans for this project gone beyond what he
called a "block planning architectural stage" and into a (indisc.)
preliminary design and engineering stages for cost estimation or
how was the cost estimation derived for various parts of the
project.
MR. EBERLE responded the cost estimates are basically based on
conceptual level plans, square footage and known portions of the
project that can be readily identified based on historical costs
for things like apron construction, et cetera. He said, "We're not
anywhere near final design; we have just started schematic designs
which is the preliminary stages of a final design. Until we get
well into design, it's going to be difficult to refine those
numbers. But anytime you go into a project, you need to go into a
project with your eyes open and have adequate funds set aside to
take care of the unknowns that might occur. Yes, we might be able
to tighten up this number as we get through the final design phase
but right now it would be very risky to go in with much less in the
way ....
REPRESENTATIVE ROKEBERG commented this project is analogous to a
project called the Trans Alaska Gas Pipeline Project which has a
floating number of $15 billion and the hope is that that particular
project once it gets into preliminary engineering and design and
gets through conceptual engineering into more harder drawings, may
be able to be reduced to about $12 billion. He said, "I guess I'm
very concerned right now that we've reached this point where we
have a conceptual design and a block plan in the rendering and
we've go some really extraordinary high numbers here. We haven't
even reached the stage where even concepts like valuation
engineering come into play .... I'm kind of concerned right now
that the net gate jetway gate increase in the whole project is
perhaps four, maximum five, and that may not be entirely true
depending on where the regional carrier parking apron is and the
traffic flow in certain areas of the parking apron. There's been
one analysis that said we're going to get two new jetways and so
it's going to cost us $100 million for a new jetway. Can you
respond to that?"
MR. PLUMB said he would ask Mr. Ketner to respond to the details of
what the improvements are in the overall project, and added that
it's certainly not just the gates; the gates are a very small part
of this.
Number 0353
MR. KETNER pointed out the total cost involves airside development,
roadside development with an extension of an elevated curbside road
as well as surface roads, expanded parking, landscaping, and then
a portion of it, of course, is the terminal. He added, "In terms
of gate requirements, the way that the gate requirements were
determined was by a programmer by the name of Joel Hirsh who took
TAMS numbers, did a considerable amount of study on airline
schedules and overall enplanement projections and based gate
requirements on an average peak hour situation for the summer at
Anchorage International. The result of the needs assessment
indicated that we, by the year 2005 with roughly three million
enplanements, would require an additional five jet positions and
seven additional regional parking positions. What we have done in
terms of an overall design is to look at how we could, as
efficiently as possible, use the apron around the existing terminal
building and the new terminal. In an effort to reduce the number
of total gates that we had to build, what we have done is relied on
a cross-utilization of three jet gate positions to be cross used
with regional parking. The schedules that we have on some of the
jet carriers that only come in during the night allow that same
apron space to be available for regional operations during the day.
I think that part of our concern here is that when we look at our
overall program, we do in fact increase the structural gate
capacity of the terminal by five gates for a total of 24, and we do
increase the number of regional parking positions to a total of 20.
Now what that means in the future is that if we are able to
maintain the cross-utilization of those spaces that we anticipate
we can do, that's good but if the schedules of the airlines change
with time such that that cross-utilization becomes less, then what
that does is drive us to a larger gate requirement." He offered to
give the committee a breakdown on the various component of the
project and the cost of each component.
CHAIRMAN COWDERY asked Mr. Ketner to submit that in writing for the
committee.
Number 0405
REPRESENTATIVE MULDER said he was concerned that the committee was
being asked to authorize $204 million approval of a "concept." He
asked if this was typical in terms of the way Anchorage
International Airport has operated in the past and is it typical of
the way other airports have operated.
MR. EBERLE said, "Let me speak to some projects other than
airports. My involvement in other major projects of this size and
larger, were really projects that the legislature appropriated
capital monies for initially to do much of the preliminary
engineering and design work to bring it up to a higher level of
confidence when the entire project is then scoped and brought back
as a total package. In this particular case however, all of these
costs are being paid for through airport revenue funds in one form
or another and in order to launch into the depth of the design that
you would need to go in to (indisc.) number, it's going to take a
considerable investment with respect to the design and it's only
prudent to address the whole project before one spends millions and
millions of dollars trying to refine a design. What we're doing
basically here is putting before you the whole program so that you
see the whole program and not just piecemealing monies for
preliminary design followed by final design without really knowing
where this whole thing is headed and what the overall target plan
is."
REPRESENTATIVE MULDER said that everyone recognizes there are needs
at the Anchorage International Airport and that upgrades and
expansions are necessary. However, in his experience, he found it
unusual for a concept to be approved as opposed to funding a study
or engineering and design, and then bringing back a more concrete
assessment of the project. He said, "Right now what you're
basically asking us is -- give us the money and trust us and no
offense, but in past experience - if the $14.5 million that we
authorized in the past is any indication, I don't have a whole lot
of confidence." He reiterated his concern with authorizing a
concept without having some assurance that the project will not end
up costing more than originally projected.
MR. EBERLE replied, "Well, we're into a bit of the chicken and the
egg as far as being able to bring monies to the table and develop
these things to a full fledged design so that you can refine the
numbers. It's not uncommon to bond a project of this nature and
George King can certainly speak to that; he's been involved in a
lot of airport projects of this nature, and I don't think what
we're asking for is unusual from that standpoint. We can certainly
come back with refined numbers as we progress into this."
Number 0465
MR. KING said there are two different issues. One is the issue of
what is the most economic, efficient, low cost, low risk and
flexible approach to doing the funding in order to deliver the
money that' needed at the right time and the right amount to do the
project. That's a financial planning efficiency question and there
are techniques for doing just that, and those techniques have been
employed in this financial plan. The separate question is the
actual expenditure of the money and the program and project
management system that's used in order to make sure that the money
is spent efficiency, that the construction bids are done in the
most economical way to get the right size of the bid and the right
drawdown schedules, making sure that projects are done in the right
sequence, et cetera. All of those implementation issues in terms
of how to spend money well are a separate question than the
questions related to how to raise money well. He felt those should
be viewed as two separate questions and as to whether the financial
plan approaches the issue of raising the money well, the answer is
yes. On the issue of spending the money well, Mr. Eberle was
speaking to the approaches that will be used in order to ensure the
money is spent well.
Number 0508
REPRESENTATIVE PHILLIPS noted that Chairman Cowdery had requested
that airport officials respond in writing to the issues that had
been raised. She had two issues to add to the list; i.e., what are
the exact plans and proposals for expansion and improvement of the
baggage claim system and what are the plans for designated glycol
disposal areas and recycling centers for the glycol.
Number 0520
REPRESENTATIVE RYAN asked if passenger facility fee were included
in the projections. If so, what are the projected revenues from
that fee and the importance of those fees to this project. He
asked the response be submitted in writing.
Number 0532
REPRESENTATIVE ROKEBERG noted he was particularly interested in the
PERT chart or implementation schedule, which outlines the timing of
the various elements of the projected. He was concerned with "what
is called out as the design point for what underneath in the year
2000, 2001 and also 2001 and going into 2002, whether it appears as
if you're using a fast track method of design on something that's
been funded like several years prior to that, and I'm kind of
curious about why those design elements are called for at that
particular point in time. Additionally, Mr. Chairman, I think this
goes with what the Speaker is getting at too, it seems as if we're
going to spend $40 million to extend what's called, I believe, the
west terminal five feet out (indisc.-mumbling) that includes the
entire amount of core and shell costs and finish work and the other
conveyance systems and things of that nature. I'm kind of
wondering what we're getting into. Also, Mr. Chairman, my final
thing is that I'd like to know if in their cost per square foot
numbers, what those are for the various components - I'd like to
see that. I'd also like to know if they include the finish work
elements, not just the -- they should be broken out between and
core and shell and the finish work element of the project."
CHAIRMAN COWDERY said he'd like to have the responses in writing
before the next meeting. He had several questions he would like to
have addressed as well: Are there any firm commitments from the
airlines or others to rent the approximate 717,000 square feet
being proposed for the new terminal; what about the concessaires;
how much will the rent increase per square foot; will the existing
tenants be given preference; and how much will be used for
executive or other airport offices.
TAPE 98-4, SIDE A
Number 0001
MR. HARRIS advised committee members that Concourse A was built for
about $7.5 million without the loading bridges and the
international terminal building for about $17 million. He believed
the finished product with the fueling stands and loading bridges
came to about $23 million total.
ADJOURNMENT
Number 0021
CHAIRMAN COWDERY recessed the House Special Committee on
International Trade and Tourism AT 6:48 p.m. to the call of the
Chair.
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