Legislature(1997 - 1998)
03/05/1998 04:07 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
March 5, 1998
4:07 p.m.
MEMBERS PRESENT
Representative John Cowdery, Chairman
Representative Eldon Mulder
Representative Gail Phillips
Representative Joe Ryan
Representative Kim Elton
MEMBERS ABSENT
Representative Pete Kott
Representative Reggie Joule
OTHER HOUSE MEMBERS PRESENT
Representative Norm Rokeberg
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
(* First public hearing)
PREVIOUS ACTION
BILL: HB 432
SHORT TITLE: AIRPORT REVENUE BONDS
SPONSOR(S): REPRESENTATIVES(S) COWDERY
Jrn-Date Jrn-Page Action
2/18/98 2353 (H) READ THE FIRST TIME - REFERRAL(S)
2/18/98 2353 (H) ITT, TRANSPORTATION, FINANCE
2/24/98 (H) ITT AT 5:00 PM BUTROVICH RM 205
2/24/98 (H) MINUTE(ITT)
2/25/98 (H) ITT AT 5:00 PM BELTZ ROOM 211
2/25/98 (H) MINUTE(ITT)
3/05/98 (H) ITT AT 4:00 PM BUTROVICH RM 205
WITNESS REGISTER
KURT PARKAN, Deputy Commissioner
Department of Transportation & Public Facilities
3132 Channel Drive
Juneau, Alaska 99801-7898
Telephone: (907) 465-6977
POSITION STATEMENT: Testified on HB 432.
MORT PLUMB, Director
Anchorage International Airport
P.O. Box 196960
Anchorage, Alaska 99519-6960
Telephone: (907) 266-2525
POSITION STATEMENT: Testified on HB 432.
RON SIMPSON, Manager
Airports Division
Federal Aviation Administration, Alaska Region
222 West Seventh Avenue
Anchorage, Alaska 99519
Telephone: (907) 271-5438
POSITION STATEMENT: Testified on HB 432.
LEIF SELKREGG, Program Management Consultant
to Anchorage International Airport and
Department of Transportation & Public Facilities
RISE Alaska
401 West 12th Avenue
Anchorage, Alaska 99502
Telephone: (907) 276-8095
POSITION STATEMENT: Testified on HB 432.
BUTCH HALFORD, Vice President
Northern Air Cargo
3900 West International Airport Road
Anchorage, Alaska 99502
Telephone: (907) 246-3545
POSITION STATEMENT: Testified on HB 432.
GERALD DES JARLAIS, President
Summit Paving and Construction
2131 Sorbus
Anchorage, Alaska 99508
Telephone: (907) 276-0278
POSITION STATEMENT: Testified on HB 432.
MARCO PIGNALBERI, Legislative Assistant
to Representative John Cowdery
Alaska State Legislature
Capitol Building, Room 416
Juneau, Alaska 99801
Telephone: (907) 465-3879
POSITION STATEMENT: Provided information on HB 432.
DONN KETNER, Architect
CCS
P.O. Box 196960
Anchorage, Alaska 99519
Telephone: (907) 266-2532
POSITION STATEMENT: Testified on HB 432.
GEORGE KING, Financial Consultant
HUDSON AIPF, LLC
730 Fifth Avenue, Ninth Floor
New York, New York 10019
Telephone: (212) 333-8684
POSITION STATEMENT: Testified on HB 432.
ACTION NARRATIVE
TAPE 98-5, SIDE A
Number 0001
CHAIRMAN JOHN COWDERY called the House Special Committee on
International Trade and Tourism meeting to order at 4:07 p.m.
Members present at the call to order were Representatives Cowdery,
Mulder, Phillips, Ryan and Elton.
HB 432 - AIRPORT REVENUE BONDS
Number 0013
CHAIRMAN COWDERY announced the first order of business would be HB
432, "An Act relating to the bond authorization for international
airports revenue bonds; and providing for an effective date,"
sponsored by Representative Cowdery.
CHAIRMAN COWDERY pointed out that he received a list of questions
and answers two hours ago from the Department of Transportation and
Public Facilities. He noted that the committee has not had time to
analyze the answers or review the list of questions and said he
would go through the list one by one.
Number 0048
KURT PARKAN, Deputy Commissioner, Department of Transportation and
Public Facilities, came before the committee to testify. He
apologized for not getting the list of questions to the committee
sooner than they were able to. He noted that a considerable amount
of time was spent researching the answers to the questions asked by
the ITT Committee. He informed the committee that he would like to
summarize some of the key issues that were brought up at the
previous meeting and also he would like to respond to a couple of
comments that were made in previous testimony. He referred to the
planning process noting that there were some questions regarding
that. He said the planing processing that brings this project to
the committee has been thorough and comprehensive. He noted that
Cliff Argue, the Alaska Airlines Chairman of the Airport Affairs
Committee, summarized this project the best, which he read into the
record:
Having been involved for nearly 30 years in the planning and
development of airport terminal facilities, I can tell you
that the work to date on the Anchorage project is among the
most thorough and most professional such effort I have seen.
The needs assessment, conceptual solutions and financial plan
were carefully developed by an expert team of airport staff
and consultants. There was an excellent coordination with the
airlines in every step in the process as we participated in
numerous meetings and reviews. My colleagues from a number of
other airlines, including Reeve, Lynden, Northwest, United,
Delta, Reno, America West, Federal Express, and UPS share this
feeling on the quality of the process.
MR. PARKAN informed the committee that the planning team for this
project included national aviation and airport master planning
experts. He referred to the airline vote and stated that there was
some question about how that vote shook out." He said the airlines
voted in support of the plan, according to the operating agreement,
with 13 affirmative votes and 12 negative votes. He explained, "Of
the affirmative votes, there were seven passenger carriers and six
cargo carriers, including the three abstentions. And of the
negative votes, there were nine cargo carriers and three passenger
carriers. Airlines representing 89 percent of the domestic
passenger revenue and 84 percent of the passenger traffic support
the project."
MR. PARKAN noted that ERA Aviation responded to a question from
Representative Phillips last week by stating that there were
multiple stipulated votes based on institution of passenger
facility charges. He informed the committee, in their packets is
a copy of two stipulated ballots: 1) from Delta Airlines
indicating that they support the project because it included
federal dollars and 2) from Reeve Aleutian Airways indicating that
they didn't support the project, but they would change their mind
if passenger facility charges were imposed.
MR. PARKAN referred to the forecast and the flexibility of the
plan, and explained, "The plan as presented to you is based on
detailed analysis of aviation forecasts and facility needs. The
forecast annual growth rate at Anchorage for the next ten years is
projected to be 4.8 percent by TAMS consultee. For that same
period, FAA is projecting 4.15 percent." He noted that AIA's
historical activity for the last seven years has been 4.65 percent,
and this has not been a straight line growth, but is comprised of
peaks and valleys. He continued, "Throughout the planning process
the airlines have been the peer review on determining size and
priority of the components of the plan. The plan represents the
airline's approved solution, not just the administration's plan."
He referred to occupancy rates and explained, "When the Concourse
C replacement of the plan comes on line in 2001, 93 percent of the
available airline rentable space is expected to be occupied. This
is based on interviews with individual airlines and written
requests for terminal space." He referred to the project estimate
and schedule and stated that the estimated cost of $197 million was
prepared by a professional design and consulting team and peer
reviewed by construction experts. He said the estimate is based on
good historical information on costs to construct airport projects
with unique factors for building in Alaska. The raw terminal
construction costs are $142 per square foot in 1997 dollars. These
costs compare favorable with national costs for constructing
airport terminals in similar seismic zones. The implementation
plan for this project is prepared to be cost effect and minimize
disruption to the airline and the public. He said a piecemeal
approach will not meet these objectives.
Number 0140
MR. PARKAN stated that contrary to recent testimony from a project
opponent, there has never been a $33 million solution for this
project. He reported that they presented a six-year cash flow
requirement to the airlines with the first year cash flow
requirement equaling $33 million. He continued, "The plan of
finance that supports the project provides an opportunity for
funding the design face services with revenue bonds. This provides
a cost effective way to immediately initiate the project without
general fund dollars. The project team will manage the overall
project budget throughout the design procurement construction
phases to meet budget restrictions." He informed the committee
that the project schedule calls for a phased approach. He said,
"The project schedule will be phased to coincide with seasonal
construction windows and to manage impacts on airport operations.
There is no fast-track construction sequencing being proposed."
MR. PARKAN referred to the six-year CIP and the rates and fees and
stated, "The plan of finance anticipates that the ongoing six-year
CIP requirements will continue to be funded, as well as the
terminal redevelopment project. Effects on the rate and charges
structure have been given to the airlines as a basis for their
vote. [Anchorage International Airport] AIA landing fees will
remain in the low to moderate range even at their highest level
when compared to other national medium and large hub airports."
Mr. Parkan noted that at the last meeting, Chairman Cowdery asked
whether landing fees have gone down over the last couple of years.
He informed the committee that in 1992 the landing fee rate was
$.84 per thousand pounds certified max gross take-off weight.
Today the rate is $.46, which has gone down considerably. He said
what that means in real terms, for example, today a Convair is
charged $5.75 every time it lands; the landing fee for a 737 is
$59.34 and a 747 pays $383. He advised the committee in their
packets is a handout, attachment 3, which has a comparison of
landing fees. He said AIA is currently in the early stages of
preparing a cargo master plan, which will address future cargo
requirements consistent with forecast and business plan decisions.
He said, "Like the terminal master plan, the cargo master plan will
require thorough review by the airlines and careful financial
consideration. Large cargo projects requiring funding in the
future will need to address cost benefit analysis as part of the
design making process on whether to proceed or not. Only those
projects determined to be financially viable will be recommended
for implementation and consideration by the airlines."
MR. PARKAN informed the committee included in their packet is an
11-page bibliography of project documents to date. He noted that
there is a correction on page 6 of DOT/PF's response to questions
from the committee under the question, "How much debt is against
the AIRF at this point?" He said the last sentence of the first
paragraph should read: "One is paid off in FY 2002 and the other
in FY 2015."
Number 0208
REPRESENTATIVE JOE RYAN said, "I've seen you're charging here
incomparable fees in America, but since this is an international
terminal with the Pacific Rim, I'd like to see what the fee for a
747 is ... and Taiwan and what the projected fees would be in this
new airport in Hong Kong." He continued, "Unless something has
changed dramatically in the last couple of years, we're talking
about disparity of quite a few thousands of dollars and I wonder
why we're not competitive with those Pacific Rim airports." He
said $383 for a 747 is pretty darn cheap.
Number 0221
REPRESENTATIVE GAIL PHILLIPS asked Mr. Parkan in his list of
airlines, "Are you still counting America West vote? Aren't the
out? Haven't they left?"
MR. PARKAN replied he believes that America West has reduced their
operations at AIA, but they haven't completely pulled out.
REPRESENTATIVE PHILLIPS said it was her understanding that they
pulled out in January.
MR. PARKAN said they pulled out, but it is his understanding that
they would be coming back. He indicated that perhaps Mort Plumb,
the Director of AIA, could better answer that question.
Number 0232
MORT PLUMB, Director, Anchorage International Airport, testified
via teleconference from Anchorage. He said the answer that Mr.
Parkan gave was correct. He said American West Airlines is still
a member and a signator to AIA. Currently, they are seasonal, so
they reduced their service, but they are coming back this summer.
CHAIRMAN COWDERY referred to the 1992 landing fees and said even
though there are a number of small carriers landing, they wouldn't
receive enough landing fees, and asked how AIA makes adjustments
for that.
MR. PARKAN responded, "The demand is met by either existing
carriers or new carries that would come in. I suspect, depending
on what the load factor is for any individual carrier, would
determine whether or not you've got a full load and a landing and
you're still paying the landing fee even though you don't have a
full capacity plane, that adjusts itself over time." He said more
importantly, what the reduction in landing fees illustrates over
this period of time, is the substantial growth the airport has had
with regard to cargo.
CHAIRMAN COWDERY said when Mark Air was at AIA they had a lot of
half-full flights, the same as Alaska Airlines, but maybe Alaska
Airlines was running larger capacities, but his understanding is
that the fees are generated regardless of the load of their gross
weight.
MR. PARKAN said he was correct and it's clearly better if they can
have a full load because they still pay the same landing fee.
CHAIRMAN COWDERY said both airlines pay the same fee.
MR. PARKAN agreed.
CHAIRMAN COWDERY asked, "When these two airlines were head to head,
and, say, became one airlines, forgetting Reno and Southwest,
wouldn't the landing fees, in effect, -- there might be a little
bit of frequency, but the fact is that the planes on Alaska with
larger capacities, they were taking up the slack by being nearly
full or fully loaded. Am I right in saying that?"
MR. PARKAN said he could only assume. He said he has no basis to
be able to answer that question.
Number 0285
RON SIMPSON, Manager, Airports Division, Federal Aviation
Administration, Alaska Region, testified via teleconference from
Anchorage. He informed the committee they are responsible for the
administration of the airport improvement program, which provides
federal funding for airport infrastructure and development projects
in Alaska. He noted that federal funding has been a question in
regard to this bill. He said he would like to address two federal
funding strategies: one is a letter of intent and the second is
passenger facility charges. He said either financial strategy, a
letter of intent (LOI), or passenger facility charges (PFC) can be
used to pay off bond debts, either by reducing the term of airport
revenue bonds or offsetting the bond financing charges. Both LOIs
and PFCs will allow the project to be built with the financial
reimbursement paid out over time. LOI and PFC revenues are
officially used to pay back debt service and financing costs.
MR. SIMPSON continued, "In the area of LOIs, AIA submitted their
LOI application to them [FAA] on March 2, 1998. He said LOIs are
basically a long-term plan for future commitment of airport
improvement program (AIP) discretionary funds needed above the
anticipated entitlement funding level. The total LOI application
amount for AIA is $47.3 million in AIP discretionary funds
requested to be paid out over a ten-year time period. He
continued, "We are currently completing our regional review of
Anchorage International's LOI application, ensuring that all
program requirements are met, such as cost (indisc.) analysis and
systems benefit. We will have the application submitted to RSAA
headquarters by Monday. We are endorsing Anchorage International's
LOI application and advocating that it be approved and we're
expecting final decisions to be issued in the July time frame. We
have to keep in mind though and remember that LOIs are request for
discretionary funding, which is very tentative; there's no
guarantee. Anchorage International competes nationally with other
airports in the same category for these LOI discretionary funds.
Securing airport revenue bonds will help gain LOI approval because
it shows commitment by the airport to actually do the project. LOI
funding is paid out over time and approximately $4-6 million per
year over a ten-year period. The LOI must be approved in advance
of the project; therefore, federal funding is primarily on a
reimbursement basis."
MR. SIMPSON continued, "To go on to passenger facility charges, as
I've stated in my testimony earlier on this bill, Anchorage
International could be earning $5 million annually with PFC
collection, and that's a fairly conservative estimate. The PFC
program was enacted in 1990 as part of the Aviation Safety and
Capacity Expansion Act. It basically is a $3 per passenger user
fee for use of airport facilities, charged where passengers in
plane or board aircraft, not to exceed $12 on a round-trip ticket
or $6 one way. PFCs are the most viable way to finance large
airport infrastructure development projects. They provide a
reliable, guaranteed stream of funding for long-term planning.
PFCs are especially suited for terminal buildings and land site
improvements, which are very low priority for AIP discretionary
dollars. We have been encouraging DOT/PF to pursue PFC. I
participated in LBA [Legislative Budget and Audit Division] task
force public hearings on PFCs in November 1996 when hearings were
held in Anchorage, Fairbanks, and Kenai. I emphasized the benefits
of implementing PFCs. At these hearings, we learned about
legitimate concerns regarding the impacts that PFCs would have on
rural Alaska where aviation is the only means of transportation.
We heard those concerns and we have been working with DOT/PF at our
FAA headquarters office on proposed changes to the regulations to
provide exemptions for rural Alaskans.
"We have received the first PFC application from Juneau in January
of this year, which we have determined it's substantially complete.
It's been published in the federal register and it's now out for
public comment. We expect to approve Juneau's PFC application in
April with collection to commit in May. This will be the first PFC
approval in Alaska. Juneau's PFC application projects collections
of $700,000 annually, or $4.2 million over a six-year period. By
comparison, Anchorage International could be collecting $5 million
annually with PFC revenues, or $50 million over a ten-year period.
As I've said before, that's a conservative estimate. Nationally,
288 airports have approved PFC programs with annual collections of
over $1.15 billion. Out of the top 100 airports nationally, only
a handful of airports have not implemented PFC, primarily in Alaska
and Hawaii."
MR. SIMPSON said he has been asked several questions regarding how
much are Alaskans currently paying when they travel down to the
Lower 48 in the way of PFC. He said even though they don't have
statistics to verify the exact costs that Alaskans are paying at
Seattle, Minneapolis, Salt Lake City, and other facilities that are
collecting PFCs, if the state of Alaska requested it, they would be
glad to further study for DOT/PF to investigate how the PFC program
actually impacts Alaska, look at the fare and root structures and
assess all of the impacts. Mr. Simpson wanted to clarify that the
current AIP bill as far as after fiscal year 1998, LOIs are subject
to AIP reauthorization. PFCs, however, once implemented are not
subject to AIP reauthorization. He said PFCs are the most reliable
guaranteed funding stream to provide the large airport
infrastructure development projects as these proposed in Anchorage
International.
Number 0393
REPRESENTATIVE PHILLIPS said she appreciates Mr. Simpson's comments
he made regarding PFC's, but its her understanding in speaking with
the commissioner of DOT/PF that PFCs are not going to be an
integral part of the financing of this project. She referred to
Mr. Simpson's testimony on February 24, 1998, and also today's that
he is looking conservatively that PFCs could possibly bring in
between over $5 million and up to $6 million per year to the
airport. However, he has not stated what they would have to give
up in passenger entitlement federal funds if PFCs were instituted.
She asked if PFCs were instituted, what funding would they lose
from the federal government because they had put that program into
place.
MR. SIMPSON replied that PFCs are intended to supplement AIP. He
agreed with Representative Phillips in that there would be a
moderate reduction in the entitlement, only on the passenger
entitlement, if a PFC is implemented. He said he does not have the
exact figures in front of him.
REPRESENTATIVE PHILLIPS said it's her understanding that it would
be about $1.3 million per year. She said in her book that's not a
minor amount, especially when the project looks like there's an
annual debt service of about $14.5 million; 1.5 million of that
they would be giving up because they instituted PFCs, which she
again reiterated is not a minor amount.
MR. SIMPSON said, "As I understand it, we're looking at the debt
surface -- the entitle (indisc.) that the airport is earning, he
[Mr. Plumb] would have to speak to how they are being applied to
that debt service in the LOI package.
Number 0403
MR. PLUMB said he doesn't have the figures before him, and he would
be glad to get the exact figures, but he believes their
entitlements last year were somewhere in the neighborhood of $2.7
per passenger [per year] and around $3.1 million for cargo. It's
his understanding that they would probably lose about half of that
so $1.3 million is correct. It was also his understanding that the
net gain with the loss of the $1.3 million and the PFCs they would
collect would be in the neighborhood of $4-5 million net gain. He
indicated that he would have to get those figures to the committee
after reviewing the exact charts.
REPRESENTATIVE RYAN said it is his understanding that the FAA has
traditionally had for years an airport improvement fund that was
basically funded from taxes on general aviation fuel. He asked if
the FAA money is coming from this particular fund. He indicated
that it was a couple of billion dollars the last time he checked.
MR. SIMPSON said, "Yes; the AIP fund comes from the aviation trust
fund which is made up of fees that are paid for fuel and cargo
throughout the country.
Number 0420
REPRESENTATIVE PHILLIPS noted that Mr. Simpson has written to
Senator Stevens regarding an exemption for Alaska smaller carriers
on the PFCs. She asked if there is a precedence for this in any of
the other states that have PFCs in place.
MR. SIMPSON said the PFC regulation does provide for some
exemption. He explained that the exemptions are for particular
classes of carriers. The way that the regulation reads now, it
would have to be less than one percent of the traffic at that
airport. He said something that is unique to Alaska is that if
they look at their commuter service, it will exceed that one
percent cap for exemption, which is basically the relief they have
been asking headquarters for, based on the uniqueness of Alaska and
the fact that many communities have relied solely upon aviation for
their transportation link. It is also based on the fact that the
commuter service well exceeds above one percent of the overall
service at the airport, such as Anchorage or Fairbanks, that they
provided an exemption for those class of carriers in Alaska. He
said they have submitted adequate justification, rationale, and
background for that and it's back being worked through the rule-
making process.
Number 0332
MR. PARKAN informed the committee that DOT/PF is talking with FAA
about a program that might take into the consideration the unique
nature of Alaska. He indicated the department wouldn't pose any
PFC program without legislative approval. He said the finance fund
did not included PFCs, and unless there's something that's publicly
acceptable that takes care of the people that have no other options
than to fly around the state of Alaska, they would not bring
forward PFCs.
MR. PARKAN made a correction to his early testimony stating that a
Convair paid a $5 fee and clarified that it is a $25 fee.
Number 0454
REPRESENTATIVE NORMAN ROKEBERG asked why PFCs wouldn't be used as
part of the financing (indisc.).
MR. PARKAN replied that they don't believe PFCs are publicly
acceptable at this time.
REPRESENTATIVE RYAN asked, "How did it come about in this airline
agreement that it took 3/4 [vote] to turn something down, rather
than to get something?" He said that is a unique situation in the
annuls of any kind of voting situation anywhere and stated it looks
like the deck was stacked toward keeping out dissidence. He asked
for an explanation on how that happened.
MR. PARKAN responded that this was the operating agreement that was
negotiated between the state and all of the airlines who signed the
operating agreement. It was negotiated in good faith and they all
agreed that this would be the approach to take for turning down
projects. He indicated that operating agreements are not unique
throughout the aviation industry for airports. Some operating
agreements have a different percentage requirement for vetoing a
project; some have a higher one. He said what is unique about the
AIA system is the fact that both Anchorage and Fairbanks are a part
of it. He said you could see what would happened if a lower
percentage of no votes were allowed for projects in Fairbanks. It
would be very difficult to get projects approved when a carrier
doesn't even fly there. Because of the operating agreement, a
carrier landing in Anchorage that doesn't go to Fairbanks can vote
on Fairbanks projects.
REPRESENTATIVE RYAN referred to attachment 5 in the packet of
information submitted by DOT/PF and noted a significant amount of
funds were designated for noise reduction. He asked if the
Anchorage Assembly has enacted an ordinance for an overlay noise
reduction area around the airport in Anchorage.
MR. PARKAN said he believes there is some consideration at this
time by the Assembly and the city administration that deals with
development within those concentric circles as the noise contours.
He indicated he doesn't think the city has taken any action on
that.
Number 0491
REPRESENTATIVE RYAN commented it's kind of standard throughout the
country in planning and zoning. He said he knows for fact that for
ten years Fairbanks has had a noise reduction ordinance that the
airport has been trying to sell to the borough. He noted
approximately eight years ago, it had not been implemented as of
yet. He asked what the cost would be to implement noise reduction
in Anchorage.
MR. PARKAN remarked that that is a problem that every large in the
country has to deal with when there's a conflict between airport
grown and residential growth. He said in some cases an airport
will have to pay for some kind of mitigation, whether it's
soundproofing a home or even purchasing the home. He said clearly
that's an issue that the Part 150 Study is addressing and indicated
they are working with the City of Anchorage on that.
REPRESENTATIVE RYAN said he would like to see, if possible, that
somewhere in the planning process and in a budget item, that
someone start looking into this and figure out the cost of
implementation. He gave an example of an old 707, which a lot of
airlines still use for cargo hauling, and noted that about ten
years ago a hush kit cost approximately $1.5 million. He said
there's an expense on all sides and the ordinance would keep people
from moving in next to the runway and then complain about the
noise. He said it would be reasonable to plan because it's
eventuality; it's coming.
MR. PARKAN agreed with Representative Ryan indicating that there
are FAA requirements for moving toward the quieter aircraft and
putting hush kits on. He noted that Alaska Airlines recently
stated that they put hush kits in all of their aircraft as an
advance requirement that is coming up in the near future.
CHAIRMAN COWDERY stated that he has had some questions about Leif
Selkregg's background and asked him to come before the committee to
testify about his involvement with the Performing Arts Center in
Anchorage.
Number 0528
LEIF SELKREGG, Program Management Consultant to the Anchorage
International Airport and the Department of Transportation and
Public Facilities, testified via teleconference from Anchorage. He
briefed the board of his employment background. He said he began
his professional career in Alaska in 1980 and between 1980-1988 he
was a project manager and worked on a series of major capital
projects in the area of the municipality of Anchorage. From 1980-
1983 he was the on-site construction manager for the Sullivan
Sports Arena and was employed by an international project
management company. From 1983-1985 he was the program manager for
the new police headquarters animal control shelter with an
international project management firm. In late 1985, early 1986,
he was approached by Mayor Knowles Administration to consider
coming on board as the on-site construction administrator for the
Performing Arts Center. His role began on that project after
footings and foundations had been installed and the structural
steel general contract sites with Kiewit Construction who is also
the construction manager. He indicated he had no role in the five
years of previous planning, design, and budgeting, but he did lead
the on-site construction team which was responsible for finishing
that project. His first responsibility on that project in 1986 was
to develop a cost and complete analysis. He said it was a tough
message to deliver, but they delivered it to the administration and
the public and with Kiewit Construction. With the support of a
number of Alaska contractors, they managed to wrestle that project
to completion and successfully in terms of no construction claims.
He informed the committee that he worked for the Sullivan
Administration, Knowles Administration, and Fink Administration on
major capital projects in Anchorage. Since that time, he has
worked internationally. One of his major responsibilities was the
program manager for the expansion of Hethro (ph) Airport new
terminal 5 which was $1.5 billion terminal expansion program.
MR. SELKREGG continued and said since 1994 he has been back in
Alaska developing a national project management company. He has
offices in Anchorage, Chicago, Philadelphia and Seattle and he
employs approximately 50 people. He emphasized he is very proud of
the fact that there is great project management capability in
Alaska. He noted he was responsible for assembling $60 million in
funding in overseeing the planning and design of the Alaska Sea
Life Center which opens to the public on May 1, 1998. He said he
would be happy to answer any specific questions about any aspect of
his professional career.
Number 0560
CHAIRMAN COWDERY asked if he could elaborate a little on any cost
overruns with the Performing Arts Center. He said he realized that
the center was put up in a shell by one contractor and then someone
else took over. He indicated he didn't think that the original
plan was for it to be completed.
MR. SELKREGG said at the time he was brought on board with Kiewit
Construction as the construction manager, in 1986 they estimated
the cost to complete the project, which exceeded the funds
available to finish the project. His recollection of the funding
of the project was approximately $45 million. In 1986 when he was
brought on board, he developed a cost to complete for the project
which showed the project would cost approximately $86 million.
With the construction community, they proceeded to value engineer
$10 million out of that cost to complete budget. He believes that
the final cost on the project was somewhere between $72-73 million.
He said it was still in excess of what the administration, at the
time, had assembled for funding. He noted the administration did
make additional dollars available. He said they did not, at any
time, buckle under the pressure of the complexity of the project in
terms of the value (indisc.) exercise. He advised the committee
that 13 Alaska contractors that built that project and every one of
them was involved with cost reduction exercises as part of their
bid packages. From the life of the on-site construction manager it
was a very successful project. From the public perception it was
a project that had been under-budgeted, and when it came time to
tell the story about what the project cost was, that story came
late. He said when he came on board, his first responsibility was
to tell the administration what the final cost for that project was
going to be. They did that and it was a tough story to tell, but
they did manage to bring that down by about $10 million through the
help of the Alaska construction community.
CHAIRMAN COWDERY asked Mr. Selkregg if there were any cost overruns
on the Sea Life Center.
MR. SELKREGG answered no and stated that they are currently
finishing that project on [ends mid-speech because of tape
change]...
TAPE 98-5, SIDE B
Number 0001
MR. SELKREGG continued, "... it's been a huge project, both in
terms of putting together the $60 million through private fund
raising, a plan of finance, and support from the Exxon Valdez Oil
Spill Trustee Council." He stated that it is a big construction
project and that they have not had any cost overruns and they are
in the final stages of completion.
Number 0022
CHAIRMAN COWDERY referred to page 1 of DOT/PF's responses to
questions from the committee under the "need/program questions and
answers" section. He asked Mr. Parkan what is meant by the
following sentence: "The project is designed to accommodate
3,000,000 enplanements or 6 million passengers..."
MR. PARKAN explained that enplanements is people getting on the
plane and deplanements is getting the people off. Therefore,
you've got people getting on and off for a total of 6 million
passengers. He said enplanements is counting the people as they
board the plane.
Number 0032
BUTCH HALFORD, Vice President, Northern Air Cargo, came before the
committee to testify. He informed the committee that the Anchorage
International Airport system has hired some of the most highly
regarded experts in their respective fields to evaluate, assess and
design a terminal expansion for AIA. They have spent several
million dollars producing hundreds of pages of analyses,
projections, data, assumptions, concepts, summaries, calculations,
et cetera. He noted that the product of all this work is complex
and convoluted. Without attempting to go over the entire mass of
paper line by line, it is sufficive to say that he is uncomfortable
with many of the assumptions and projections that have been made.
He said, "We agree that the terminal could use some sprucing up.
In fact, we think it's a good idea and we support it. We do not,
however, support such a grand plan that does not address adequately
the risks that we face if we fail to meet those expectations. If
the traffic doesn't come, who pays for it? Those of us who live
here, that's who. It is unfathomable to me to renovate and upgrade
the terminal to a reasonable level should cost over $200 million to
begin with. That seems that there is either way too much for what
we need or we're paying way too much for what we're getting.
Despite the immense costs before us, please keep in mind that it's
only the first part of the greater plan. There's at least a second
phase that, complete with the new parking garage, will no doubt
also cost over $200 million. There are plans for a substantial
development in both the North Air Park and the West Air Park as
well that could also run into hundreds of millions of dollars. The
projected landing fees don't appear to consider these other
projects nor will have much in the way of runway repaving or
replacing any pieces of snow removal equipment, et cetera, in the
meantime. And they don't appear to take into account much in the
way of other capital projects. Except for paying for a significant
amount of it the cargo carriers, both domestic and international,
are not really impacted by a terminal renovation and expansion. We
derive no direct benefit from it whatsoever and simply put, the
terminal consists of the Anchorage domestic, Anchorage
international and Fairbanks domestic terminals.
"Under the terms of the operating agreement, the total cost of
operating and maintaining them, including the debt service of the
three terminals, is by dividing the total number of square feet in
the terminals by the total cost of maintaining and operating into
a determined cost per square foot. Then each tenant pays that rate
for whatever space they lease. The concessionaire, rents, parking,
duty free revenues, et cetera, are also applied against the
terminal maintenance and operating costs. On leased space, which
included common areas and other space not available for lease by an
airline or concessionaire, such as the concourse areas, airport
management's administrative offices, airport security, governor's
private conference room, et cetera is paid for by landing fees.
Today, with approximately 90 percent of the leasable space rented,
31 percent of the terminal costs are borne by landing fees. That
figure is projected to reach 40 percent when the terminal comes
into service in the year 2002."
Number 0065
MR. HALFORD continued, "Cargo carriers currently pay approximately
70 percent of the landing fees. The models for the new terminal
provided by the airport are at least initially for less than 90
percent occupancy. Coupled with the projected cargo growth higher
than that projected for passenger growth, the portion paid by cargo
carriers will grow even larger over time. Nevertheless, cargo
carriers do not arbitrarily oppose projects that do not directly
benefit them. We all have a long history of supporting reasonable
and responsible and justifiable projects that benefit the community
or airport as a whole, even when there's no direct benefit to the
cargo carriers and the record clearly reflects this. It is prudent
to be cautious, though, and ask tough questions and demand clear
and satisfactory answers, particularly when paying sums of money of
this magnitude.
"I require less certainty when contemplating spending $20 on
something than I do when I contemplate spending $20,000 on
something, and a lot less than when I'm spending $200 million on
something. Two hundred million of anything demands scrutiny and
that the need be clear and the cost reasonable. It's said that
facts are stubborn and sometimes very stubborn. For $200 million
we must all be stubborn as well and get every fact, stubborn or
not. It is important beyond belief when applied to that much
money."
MR. HALFORD said even if the airport's projections are accurate, he
asked, "Do we truly need such an ambitious expansion to accommodate
them? Is this the way that you would spend your own money?" He
asked who really needs this terminal. He commented that the people
who live in Bethel, Ketchikan, Juneau or Kotzebue don't. In short,
the people that live in Alaska really don't need it. He said the
people who visit Alaska don't choose to stay home because the
terminal may be crowded when they get there. As for the Alaskans
that live in the rural parts of our state, they are already the
least able to afford even the slightest cost increase. They
clearly don't have the money to waste on things they don't need and
they don't need a $200 million terminal. He asked, "How much can
the two airports afford? Well, if you assume that landing fees and
terminal rates can be increased ad infinitum and that it's okay to
pay $12 for a hot dog that you're only getting off with for $4 for
now, then I suppose it is limitless. But in reality, there is a
limit. If cargo grows anywhere near the levels forecast, then the
airport will no doubt require further substantial investment in the
next few years to come. How much bonding can the airport secure?
And even if they can get the bonding, how high do the landing fees
have to get before carriers would rather spend that money on
Russian overflight fees or new longer range aircraft that no longer
need Anchorage at all. The well is not bottomless."
Number 0094
MR. HALFORD urged a measured incremental approach to meeting the
terminal expansion needs. He said we can always build more, once
built, however, it can't be torn down and the expense doesn't go
away if they find out that it was overdone. He said we should
first establish clearly-defined trigger points to determine when to
make additions and expansions. Second, closely define what needs
to be done and provide a precise cost estimate for it. Only then
with the facts, figures, and justifications can the legislature
make an informed decision and be confident that the best use will
be made of the resources available. He said he would be happy to
answer any questions from the committee.
Number 0102
CHAIRMAN COWDERY indicated that he has requested assistance from
legislative consultants to help them with the project. He asked
Mr. Halford, "Do you think that would be a prudent thing to do?"
MR. HALFORD replied, "More eyes are better. More eyes' objective
view of it may see things that we're overlooking." He noted that
there is a lot of complex data, which is not easily understood. He
stated that professionally trained eyes can do nothing but help.
He commented he thinks it's a good idea to get assistance.
CHAIRMAN COWDERY asked, "Are there ever cargo-related projects that
don't directly benefit passenger airlines? Do passenger airlines
complain when that happens that you're aware of?"
MR. HALFORD said he could not recollect a case where that occurred.
He said there are probably fewer projects that are specifically for
cargo than there are for passenger facilities.
Number 0116
REPRESENTATIVE RYAN said using a 747, model 300 series as an
example, he recently gave the committee a little insight on how an
airplane is loaded, how the fuel stops are planned, the FAA weight
of 350 passengers, baggage, et cetera. Using that example,
approximately 130,000 pounds of excess capacity would be left in
the aircraft for freight that could be put in the belly to help get
revenue for the plane. He said it's his understanding that United
Parcel Service and Federal Express are not breaking down loads now
like they would at a hub in Memphis or someplace. It's just kind
of a fuel stopover. He said there are Russian flights that are
cargo only, and there's a new airport being built in Hong Kong with
14,000 feet runways. His question was where are all of these
people going to come from for this passenger terminal when it looks
like freight is what the AIA's future is.
MR. HALFORD said Anchorage, for passengers, is by in large a
destination. It's the end of the road. He referenced Seattle in
that some people get off of the plane because it's their
destination, but a good number of people continue on with the
flight. He indicated that Anchorage doesn't behave that way. For
an airport it's size, it's unusual. On the other hand, in many
ways the cargo mimics the traditional passenger traffic patterns by
stopping in Anchorage on their way somewhere else. He said he
believes that United Parcel Service, Federal Express, and United
Airlines do a limited amount of interchange on their freight
between aircraft, and he thinks they expect to do a lot more. In
terms of the future for Anchorage, he said the passenger growth is
going to have to come primarily from tourism and perhaps a rebirth
of international passenger traffic. He said they don't transit
Anchorage like they once did, and there's a far less amount of the
flights that are passengers with bellies full of freight.
Currently, the flights are all passengers or all freight, by in
large. He said truly the convention of wisdom forecasts that the
future of the Anchorage International Airport and the Fairbanks
International Airport lies more in cargo than it does in
passengers.
Number 0154
REPRESENTATIVE RYAN asked Mr. Halford if he thinks it would be
prudent to try and add another couple thousand feet of runway so
greater payloads could be carried for the cargo aircraft versus the
big terminal and perhaps some warehousing with a duty free zone for
bonded warehousing and so forth?
MR. HALFORD replied that a longer runway to allow maximum payloads
has been visited and there are extended runways both in Anchorage
and Fairbanks. Except for specific weather conditions with
temperatures and unfavorable winds, and trying to be consistent
with noise considerations and not wanting to take off fully-
grossed, wide-body freighters over neighborhoods, he thinks that
over 95 percent of the time they are not payload limited. He said
he is certain that there is occasionally a flight that is payload
limited. After consulting with all of the international wide-body
freight aircraft operators, for the most part, in their opinion,
the cost and benefit of a runway extension wasn't worth the few
times a year where they get impacted by it.
REPRESENTATIVE RYAN asked, "How about the bonded warehouse?"
MR. HALFORD replied, "I think it's just a matter of when." He said
being a duty free zone presents many opportunities.
Number 0180
REPRESENTATIVE ROKEBERG noted that Northern Air Cargo voted no on
the airport expansion. He said Mr. Halford indicated in his
testimony that he was fearful that the scope of the terminal was
basically pretty large and grand and that he was concerned about
the cost. He asked Mr. Halford if he is more concerned about the
increase in landing fees that may result if there were problems in
paying for this, or does he see a misallocation or a diversion of
funds away from the cargo development, which would affect his
business end of the passenger development. He asked Mr. Halford
what his concerns are, in particular, as they affect his operations
as a business.
MR. HALFORD replied, "It's actually some of each." He stated that
they are not anxious for additional costs and they vigorously fight
the inevitable increase of costs for a number of reasons: 1) it
makes them less competitive and 2) they feel they have an
obligation to be able to provide the service to their customers in
rural Alaska as affordably as possible. He said they fear and
don't take lightly any potential cost increase. He said they will
have to pay a significant amount of this project. His other
concern, which is difficult to foresee, is that there may be
something in the future that would make sense and improve things
for cargo operations, but because of their cost structure with a
debt of this size may make it less likely to occur. He said there
is a maximum amount of debt and expense the airport can support.
Number 0210
REPRESENTATIVE ELDON MULDER referred to Mr. Halford's testimony
regarding gas and asked, in his opinion, what has a greater
determination of the price of an airline ticket - the landing fee
or the price of gas?
MR. HALFORD responded, "Neither; what your competitor is charging."
REPRESENTATIVE MULDER said the reason he asked that is because he
has received a number of telephone calls from his constituents
lately regarding since the price of gas has gone down why hasn't
the price of airline tickets gone down.
MR. HALFORD said with his company their highest expense is payroll.
Secondly, and not very far behind that, is fuel. In terms of the
amount of money that they spend on fuel versus the amount of money
they spend on landing fees, landing fees pales in comparison. He
said a very small change in the price of fuel can amount to a whole
lot of dollars for even a company their size. In conclusion, he
said the price of fuel has more impact than the landing fees.
CHAIRMAN COWDERY asked Mr. Halford what calculation he did on the
contingency plan that's been set aside in the project's cost.
MR. HALFORD said he took the construction cost estimate and the
cover sheet showed a line-by-line description of each of the
projects that would be required to complete it and the associated
price. He continued, "On the following pages was a more detailed
description of each item, which gave the anticipated construction
price. And then estimator's contingency, change order contingency,
which were either 10 or 20 percent, depending on which particular
project it was, that brought you to the new subtotal cost of that
project. Then they were added to that 'does other construction
cost of 5 percent and a construction administration' of an
additional 10 percent, which was applied both to the actual cost of
construction end of the contingencies. And then that brought you
to the price for that project. That brings you back to the cover
sheet where it summarized the construction cost estimate where
those were all totaled up. And then they took 10 percent for
design and administration, 2 percent for permitting ... but that
totaled 14 percent, and that was again applied to the other
contingency cost. To determine what the part was actually
identified as construction and the part that was expressed as a
percentage, I just took those construction figures and subtracted
them from the total and what was left over was the indirect cost.
Around 53 percent was the line item for the cost of the project and
just under 47 percent was for the items that were identified by a
percentage."
Number 0266
GERALD DES JARLAIS, President, Summit Paving and Construction in
Anchorage testified via teleconference from Anchorage. He said
from what he's heard in committee today he may be a bit premature
in his comments, but seeing the magnitude of the project, he wanted
to add his comments from the perspective of a general contractor.
He said the first time he heard of the airport expansion project he
supported it. He thinks AIA is a major economic asset to Anchorage
and to the state. His comments concern the size of it. He said,
"The volume of work in Anchorage or in Alaska is such that few of
us can justify gearing up and bonding equipment organization and
take on huge projects and too often the very large ones, the
majority of them, go to outside contractors. I think we'd all
agree that the value of such a project as this is enhanced when the
majority of the dollars for construction stay in Alaska. As such,
I wanted to urge that, assuming it does forward, that it be broken
into a sufficient number of phases to permit a significant number
of Alaskan contractors to bid on the work." He said just prior to
the today's committee meeting, he was advised that apparently there
is the intent to break it into 15 or 20 phases. In conclusion, on
that basis, he is looking forward to seeing the bid packages.
CHAIRMAN COWDERY said he would like to go through the handout from
DOT/PF, which are the responses to questions from the committee at
their last meeting.
Number 0306
MARCO PIGNALBERI, Legislative Assistant to Representative John
Cowdery, Alaska State Legislature, came before the committee to get
them started on the questions and answers. He noted that when they
received the information this afternoon, Representative Cowdery
asked him to highlight some issues that might lead to questions to
assist the committee due to the limitation of time in committee.
He referred to the first question on page 1 which reads:
After the proposed project is completed, what will be the
plane/passenger capacity at AIA and how long will this
capacity satisfy anticipated demand?
MR. PIGNALBERI pointed out at that the end of that answer DOT/PF
said one of the factors determining terminal expansion is the
ability of airlines to share or to cross-use gates. He said the
question that comes to mind is can they or can't they? Who makes
that decision and why is it an open question at this point if the
projections are made as to the gate sizes and what type of aircraft
will be there? Is it an airport management decision? He asked why
that should be an open question at this point? He said according
to the passenger forecast an additional four jet gates may be
needed in about 2010 with another four jet gates in about 2015. He
said the question that keeps coming up is, can the airport revenue
fund support additional projects, additional capital expenditures,
that will be needed while this $190 million of debt is still being
paid off at the rate of about $14 million a year. He pointed out
that those are the factors that came to light on the first
question.
CHAIRMAN COWDERY asked Mr. Parkan if he could answer that question.
Number 0312
MR. PARKAN said Mort Plumb could speak to the issue of cross-use of
gates, and said that it principally is a matter of interest by the
airlines, and whether or not they want to share a gate, as well as
the equipment.
MR. PLUMB said the people who did the forecast analysis went to the
airlines and they were offered the opportunity to use a CUT (common
use terminal) system and the preponderance of those that spoke with
the consultants on this did not want to use common use terminal
space because when they do that they have to switch out computers,
et cetera. That was one of the fundamentals that went into
determining the number of gates. He said the larger driving area
may be the schedule. In Anchorage in the late evening hours many
of the airlines arrive at the same time, so it's not only the
ability to use the same gate, but it's also the conflict of having
several airlines on the ground at the same time. He pointed out
that the airlines determined if they wanted to use common use space
or if they wanted to have proprietary space. He indicated they
think there are some ways to accommodate with some of the regional
carriers and some of the jet carriers that are between day and
night that they can cross-utilize some of the gates. In their
planning, they had allocated three of the gates to cross-utilize,
although currently in Anchorage they are not cross-utilizing any
gates.
REPRESENTATIVE RYAN said, "This total enplanement for seven years
from now of ten times the population of Alaska is six million
people is going to take an awful lot of airlines coming in here and
dropping off passengers that are going on to other destinations
with other carriers. So we're going to have to have something like
United or American or an up-lying route in competition with KAL or
Cafe Pacific (ph) or somebody like this coming in and dumping their
passengers here, interlining them off to this other airline. Or
everybody in Alaska is going to have to go somewhere ten times a
year." He said he understands what projected growth is, but he has
difficulty visualizing that many people out of Anchorage. He asked
if he could explain where all the people are going to come from.
MR. PLUMB said he's not sure he heard the whole question. He then
referred to attachment 2 entitled "Enplanement Forecast Charts,"
which shows the passenger traffic at AIA. Last year over five
million domestic/international people went through the AIA
terminal. He said he believes the enplanements for the target
period were three million, which would equate to six million, and
AIA is only one million behind that right now.
REPRESENTATIVE RYAN restated his question. He said, "We have a
projection of five times the population of Alaska. If I understand
the word 'enplanement' that's someone getting on an aircraft to go
somewhere; is that correct?"
MR. PLUMB said, "Basically that is correct; that is someone getting
on an airplane. It could also be counted as someone coming in on
Alaska flight from Seattle to Anchorage and then getting on a U
(ph) flight or an Era flight - if the air flight were not a co-
chair flight or not a continuing flight - so they would be counted
as an enplanement also."
REPRESENTATIVE RYAN said he would like to ask a question out of
context. He said he heard a rumor and doesn't know any of the
details that there's a new underground fuel pipe system that's
going to be laid at the airport. He asked Mr. Plumb if the new
fuel system is going to take place in conjunction with or before
the airport construction begins or are the new ramps and taxiways
going to be built first and later dug up to put the new fuel line
in.
MR. PARKAN interjected and said the pipeline he is referring to is
a pipeline that is being proposed by the fuel consortium that is
delivering the fuel to all of the carriers right now. It's a
separate issue being proposed and developed by that consortium
currently and they are working with the municipality and the state
and federal government to get the necessary permits to access fuel,
particularly from the Port of Anchorage to the airport. He said
because of the growth of traffic at the airport, the capacity of
the existing pipeline isn't going to be able to meet the demand
that they need. He said the airport needs a better way to get the
fuel than their current system. He informed the committee it is a
totally separate issue from the terminal project.
REPRESENTATIVE RYAN asked, "It won't involve underground fueling?"
MR. PARKAN replied if the pipeline is the ultimate solution it will
come into the airport at some point, which will require it
connecting with either the existing line or another larger diameter
line that brings it to the new fuel site on the north side of the
terminal.
Number 0431
REPRESENTATIVE ROKEBERG said as he was reviewing the information
submitted by DOT/PF he noticed that some of the questions the
committee asked last week were omitted. Therefore, he would like
to repeat his questions he asked and expand on them, which don't
necessarily have to be answered today. He addressed the issue of
gates and said he is disturbed with the design of the entire
terminal for the fact that for the amount of money, only five new
jetway positions are being added. He said, "If the projections are
such that in five year increments will be a need for four each in
the ten following years. And because of the - what appears to me
a lack of foresight or design in the future footprint, I have
talked to Mr. Plumb and other people about putting on another
concourse between the B Concourse and the international concourse.
However, I'm concerned about that. And perhaps it's the most only
logical place, but it just seems for the 'bang for the buck' here
we're getting about $40 million for each jetway. It doesn't seem
like a very good investment, although that's not the proper way to
look at it and I understand that. I am concerned about that and
having adequate numbers." He asked Mr. Plumb, "When you're
managing those jetways and those gates, you indicated they are
proprietary now so it's really up to the particular airlines, but
is there a vacancy factor or a turnover rate that helps you manage
that?" He referred to Mr. Plumb's testimony where he talked about
the common use versus the proprietary use, which he feels has a
major impact on the turnover. As a manager, he asked Mr. Plumb how
he perceives the number of gates the airport currently has and
where they are going to be in a few years.
MR. PLUMB advised the committee that one of the challenges they are
facing is that TWA wants to dock in Anchorage, but they are having
a very difficult time finding a place for them to dock at the times
they want to come in. He said AIA is already behind the number of
gates they should have at the current time. He said that is not a
problem right now, but it will only become a greater issue as the
traffic increases. He indicated that they certainly would not
welcome any reduction to ease the gate problem, and said they
currently do not have a problem as far as having too many gates.
The challenge is trying to figure out where to pack the people when
they come in now.
REPRESENTATIVE ROKEBERG said his question was does AIA have enough
gates. He noted that AIA would only pick up five more gates for
$200 million. He said if AIA can't even accommodate their demands
currently, and only five more are being added in the time frame of
this project, he is concerned about that. He said he doesn't
understand why they are adding five-feet of space for the people
standing in line at the ticket counters, and wants to know how it
all fits together.
MR. PLUMB said he would refer the question to Donn Ketner, the
project manager for the terminal redevelopment for AIA to explain
exactly how that has been engineered and what some of the costs
are.
Number 0517
DONN KETNER, Architect, CCS, testified via teleconference from
Anchorage. He explained that he is the project manager for the
terminal portion of the terminal redevelopment project. He stated
that there may be some misconceptions on several issues. First,
they are proposing about a 40-foot pushout, the back gates A-1
through A-4, off the back of the ticket lobby and bag claim area.
The reason for doing that is they will obviously be able to expand
the ticketing and bag claim area. He pointed out it's important to
understand that one of the main challenges that they face is the
imbalance in the terminal today between the air side and the land
side. He noted they are very deficient in ticketing and bag claims
for the number of gates they have today. The other issue he wanted
to address is future expansion. He indicated that they looked at
14 master plan alternatives for the year 2015. He said the
airlines participated in evaluating those 14 different concepts,
and the concept to provide a future concourse between what is
currently the international terminal and Concourse B was found to
be the most cost-effective plan for the future. In fact, some of
the developments that they're proposing, such as the elevated road
system, is currently sized to accommodate the 2015 plan because it
would be too costly to do that expansion in multiple phases.
REPRESENTATIVE ROKEBERG took note that the expansion would be 40
feet as Mr. Ketner explained and not five feet as he first stated.
He noted that was a significant difference. He asked Mr. Ketner if
they looked at expanding the baggage pick-up area in the new
Concourse C area instead of reworking the existing bag claim area.
MR. KETNER responded that they will expand both the bag claim area
and the ticketing area in the new "C" replacement. He said they
found that it would not be cost effective to totally replace the
existing ticketing and bag claim area. He said, "Expanding what we
have today with a combination of new square footage was the least
expensive solution to the problem."
Number 0570
REPRESENTATIVE ROKEBERG asked Mr. Ketner, "Why did you use a 45
degree angle when you go down from the perpendicular line of
Concourse B to C and then your 40-foot expansion?" He said it
expands a significant amount of square footage in cost and
indicated he's not sure what they pick up from an efficiency
standpoint.
MR. KETNER said it would be better to answer that question looking
at a conceptual floor plan. He said he could make that available
to the committee, but the concept right now is to provide a central
retail core to the new terminal space and also to provide for a
secure circulation pattern that would allow all gates to be
accessed without leaving security. He referred to the lower level
and said they have an extensive need for operational space and bag
make-up, which that space lends itself to quite nicely.
REPRESENTATIVE ROKEBERG said, "I'm glad that's the case because I
wouldn't want to spend $20 million on building a food court there,
if that was the square footage cost."
MR. KETNER said one of the answers to the questions the committee
has in their packets addresses the expansion of the concession
area.
TAPE 98-6, SIDE A
Number 0001
MR. KETNER continued, "One of the other points that's of interest
is that we projected that the retail space that we're building
should pay for itself in about a six-year period."
REPRESENTATIVE ROKEBERG said, "In terms of the overall concept
again, extending beyond the jetway area of the new Concourse C
redevelopment wing and out into the regional commuter parking area,
the way the conceptual design is it narrows down significantly and
then it narrows down again and extends all the way as a walking
area to the international terminal. This seems like an unusual
design, particularly it's less square feet from a volume area, but
like going all the way ... What was the reason for going all the
way to the international terminal, number one, and number two, is
the design going to accommodate the expansion if you had to put
another pier out there to add additional gates later?"
MR. KETNER addressed Representative Rokeberg's first question and
said, "The connection between the seed extension in the north
terminal -- so someone takes the movement of passengers between the
north terminal and the south terminal, it is, as you may know, we
are utilizing -- during the construction of the terminal we will be
moving Delta Airlines' operation to the north terminal. In the
long term as we construct domestic facilities toward the north
terminal, I think we'll see a greater and greater need to provide
a transit connection there between the north terminal and the south
terminal, and to give passengers that as a walking alternative."
He referred to Representative Rokeberg's second question regarding
the design accommodating additional gates. He said the solution
that was selected by the airlines as a long-term expansion
alternative is to provide another concourse between what is now
Concourse B in the international terminal. He indicated that they
could fairly inexpensively provide a new concourse/pier midway
between the north terminal and Concourse B. He said the design
that they're looking at for 2005 anticipates the construction of
that new pier and currently they're showing the pier coming on line
with eight gates to service passengers in the year 2015.
REPRESENTATIVE ROKEBERG asked what the cost would be for that.
Number 0075
MR. KETNER said to a certain degree it will depend on when it comes
on line and what escalation is between now and then. He thinks it
will be in the $150 million range.
REPRESENTATIVE ROKEBERG asked what the cost would be, using today's
dollars, for an eight-gate pier.
MR. KETNER replied that an eight-gate pier would be comparable to
the north terminal that they currently have, which is close to
300,000 square feet. He said they're into building essentially an
eight-gate facility, which would be a future project that would
have to be voted on by the airlines and it would be triggered by
actual enplanement increases and as they grow in enplanements, they
would grow in revenue.
REPRESENTATIVE ROKEBERG asked if there are any domestic flights
using the international terminal currently.
MR. KETNER responded in the affirmative. He indicated all of the
domestic charter flights currently go through the international
terminal and there is a connection to the regionals that they have
identified, particularly during the summer. He noted that in the
interim basis during the construction, which will probably be a
three to four year period, Delta Airlines will be operating out of
the international terminal.
REPRESENTATIVE ROKEBERG said, "Yeah, but the connection won't help
Delta then." He asked, "How much would we save if we lopped off
the connection from the end of the passenger terminal use for the
regional carriers over the international carriers?"
MR. KETNER replied that he thinks that the cost of that facility
was approximately $1.2 million.
REPRESENTATIVE ROKEBERG referred to a question he asked at the last
committee meeting regarding the coring shell versus the finish work
cost for the fit-up of the premises, particularly as it related to
the office space for the operation of administration of the
airport. He said he is also curious about any preliminary designed
on the whole baggage system and how it all fits together to be able
to come up with the dollar figures that's needed for the project.
MR. KETNER said they are in an early schematic design at this point
in the project. He indicated that they have some very preliminary
ideas with regard to exactly how the baggage systems would be laid
out. He said the raw construction cost for the terminal expansion
is about $142 per square foot. They recently received a report
which showed that it compared fairly favorable with other terminal
projects nationwide.
REPRESENTATIVE ROKEBERG asked, "That was just your core and shell
costs though, wasn't it?"
MR. KETNER replied that is what he would call his raw construction
costs. In other words, it would be the actual construction cost of
the bid packages for the contractors.
REPRESENTATIVE ROKEBERG asked if it includes the finish work detail
and the other fit-up for the items inside.
MR. KETNER said that cost per square foot would include finishes,
except for those areas that would be leased as a shell area.
REPRESENTATIVE ROKEBERG noted that Mr. Halford indicated that he
was looking at the preliminary project cost with the extensions.
He asked if the committee received copies of those figures.
MR. PARKAN referred to Representative Rokeberg's question about
office space and said there is a response in the committee's packet
of questions.
REPRESENTATIVE ROKEBERG said, "I know, that's not the response,
though."
MR. PARKAN said the office space will be approximately the same
space as currently being used.
REPRESENTATIVE ROKEBERG reiterated that his question was how much
is it going to cost and how much is allocated to the finish work
cost for the office space.
REPRESENTATIVE PHILLIPS said she appreciates DOT/PF's answers on
the baggage claim system and also on the glycol disposal areas and
the recycling center for the glycol. She requested that the
minutes from the meetings regarding glycol recycling be sent to
her. She indicated that she has three questions. The airport
operating agreement expires July 30, 2000, and she asked what is
being done to renew this. In light of all the major expansion
required, and apparently all of the future projects that they are
looking at, she asked if anyone did a cost analysis of starting
over at ground zero with a brand new terminal project on the other
side of the north/south runway. In conjunction with that she
requested DOT/PF to send the committee a list of all of the
possible projects that they have on their drawing board for the
entire airport to cover the next 25 years. She said what she is
trying get is a cost analysis of just starting it over with a brand
new facility. Last, she asked if the tower facility is
satisfactory for the proposed expansion. She indicated that she
doesn't need the answers to her questions today, but would like the
answers at the next committee meeting.
REPRESENTATIVE RYAN asked if any consideration has been given to
segregating commuter traffic and general aviation traffic away from
the larger jets so that that they're not commingling with smaller
aircraft.
Number 0215
MR. PARKAN said they would be happy to provide that answer to the
committee at the next meeting.
CHAIRMAN COWDERY referred to the questions/answers from DOT/PF on
page 8 which reads:
What prioritization have you done to achieve a scaled back
scenario of there was a 100 basis point rise in interest
rates?
CHAIRMAN COWDERY indicated that the 100 point rise in the interest
rate equated to approximately $30 million. He indicated DOT/PF's
answer was:
The Plan of Finance provides for a 100 basis point cushion in
the sizing of the bond. No scale back scenario would be
required for a 100 basis point rise.
CHAIRMAN COWDERY said it seems to him that they have a $30 million
contingency plan potential. He asked, "What would you do with the
money?"
Number 0235
GEORGE KING, Financial Consultant, HUDSON AIPF, LLC, testified via
teleconference from New York. He said he believes there is some
confusion because there are a couple of different factors that are
coming into play at the same time. First, the $30 million number
is a reference to the cost of a 150 basis point increase in a $100
million portion of the financing. He said, "If we were to split it
into two pieces and we were subjected to an interest rate increase
in the interim period of time before the second bond issue, so
that's what that reference was from." He said the reference to the
100 basis point cushion is a comparison between current interest
rates and the assumed interest rates, which were put into the
financial model at the time they ran it. He referred to his last
testimony and said they included interest rates that were 100 basis
points higher than the rates at the time because they were and are
experiencing 20-30 year lows in the interest rate market, and they
did not feel that it was correct to assume that they would have
access to those rates. They hope they do, but they didn't think it
was fair to assume access to those great rates when they were
showing the airlines what their model rates and charges would be.
He referred to an earlier question regarding what would they do
with the money if they were fortunate enough to have access to the
current interest rates at the time they actually went to market.
He said they would, on the issue of interest rates and every other
aspect of the financing, do the absolute most efficient job at the
time that they go to market, and any savings that result will
result in lower debt service payments that will be in effect for
the next 25 years. He said that will be locked in at the time they
go to market, which will result in lower rates and charges.
Number 0267
CHAIRMAN COWDERY asked Mr. King to put his testimony in writing.
He referred to another question regarding who's design concept was
it. Did AIA tell the architect what they wanted, or did the
architect come up with the idea? He commented that he would like
written answers to the questions raised in today's committee
meeting from DOT/PF.
ADJOURNMENT
Number 0282
CHAIRMAN COWDERY recessed the House Special Committee on
International Trade and Tourism at 6:00 p.m. to the call of the
Chair.
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