Legislature(1993 - 1994)

02/10/1993 08:03 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                        February 10, 1993                                      
  SFC-93, #16, Side 1 (561-001)                                                
  SFC-93, #18, Side 1 (001-561)                                                
  SFC-93, #18, Side 2 (561-001)                                                
  SFC-93, #20, Side 1 (001-450)                                                
  CALL TO ORDER                                                                
  Senator  Drue Pearce,  Co-chair,  convened  the  meeting  at                 
  approximately 8:03 a.m.                                                      
  In addition to  Co-chairs Frank and Pearce,  Senators Kelly,                 
  Kerttula, Rieger,  and Sharp  were present.   Senator  Jacko                 
  arrived while the meeting was in progress.                                   
  ALSO ATTENDING:                                                              
  Charlot  Thickstun, Director,  Division  of Elections;  Chip                 
  Thoma,  representing himself; Max Gifford, staff for Senator                 
  Kelly; Juanita Hensley, Chief, and  Jay N. Dulany, Director,                 
  Department of Motor Vehicles, Division of Public Safety; Mr.                 
  Robert S. Hatfield, Jr., President and CEO,  ARRC; Mr. Loren                 
  Lounsbury, Chairman  of the Board, ARRC;  Commissioners Paul                 
  Fuhs, DOC&ED;  Frank Turpin, DOT/PF,  Mike Greany, Director,                 
  and  Karen  Rehfeld,  Fiscal  Analyst,  Legislative  Finance                 
  Division; and aides to committee members.                                    
  SUMMARY INFORMATION                                                          
  Alaska Railroad and Railroad Board Overview                                  
       Co-chair Pearce  and the  committee invited  members of                 
       the ARRC Board to speak  to unanswered questions raised                 
       during an interview  with Commissioner Turpin during  a                 
       budget overview of DOT/PF.                                              
  *CSHB 68(FIN)  -    An    Act    making    a    supplemental                 
                      appropriation for certain  elections for                 
                      regional  educational   attendance  area                 
                      school  boards   and  coastal   resource                 
                      service area boards;  and providing  for                 
                      an effective date.                                       
                      Testimony  was  presented  by  Charlotte                 
                      Thicksten,    Director,   Division    of                 
                      Elections.     The  appropriation   bill                 
                      ($90.0)  was  REPORTED OUT  of committee                 
                      with a "do pass" recommendation.                         
  SB 30     -         An Act extending the termination date of                 
                      the Alaska Minerals Commission.                          
                      The bill was  REPORTED OUT of  committee                 
                      with a  "do pass"  recommendation and  a                 
                      zero fiscal note  from the Department of                 
                      Commerce and Economic Development.                       
  SSSB 47   -         An    Act    relating    to   equipment,                 
                      registration,   and   identification  of                 
                      custom collector vehicles; and providing                 
                      for an effective date.                                   
                      Testimony was presented by  Max Gifford,                 
                      staff to  Senator Kelly; Jay  N. Dulany,                 
                      Director,  DMV;  and   Juanita  Hensley,                 
                      Chief, Department of Public Safety.  The                 
                      bill was REPORTED  OUT of committee with                 
                      a "do pass"  recommendation and a  $10.9                 
                      fiscal  note  from  the   Department  of                 
                      Public Safety.                                           
  *First Senate hearing                                                        
  CS FOR HOUSE BILL NO. 68(FIN):                                               
       An Act making a supplemental appropriation for  certain                 
       elections  for  regional  educational  attendance  area                 
       school boards and coastal resource service area boards;                 
       and providing for an effective date.                                    
  CO-CHAIR DRUE PEARCE  directed that CSHB 68(FIN)  be brought                 
  before the committee  and that the committee  had received a                 
  like bill, SB 48.  She invited  Charlot Thickstun, Director,                 
  Division of Elections, to testify on behalf of CSHB 68(FIN).                 
  CHARLOT  THICKSTUN  directed attention  to  a memo  (copy on                 
  file) dated February 4, 1993, from the Division of Elections                 
  explaining  Regional Education  Attendance  Area (REAA)  and                 
  Coastal Resource Service  Area (CRSA)  elections.  She  said                 
  the  reapportionment  and  related   litigation  had  caused                 
  unexpected expense to  the division.  She  said the division                 
  needed $90.0 additional funds  in order to pay for  the cost                 
  of REAA and CRSA elections.                                                  
  CO-CHAIR   STEVE  FRANK  confirmed   that  money   had  been                 
  appropriated to  the Division of Election's  original budget                 
  to cover the expenses of the REAA and CRSA elections but the                 
  money  was spent  to cover  other  expenses.   Ms. Thickstun                 
  agreed that was  the case.   She said  the there was  enough                 
  money in the budget to fund  the division until February 15,                 
  1993,  and  the  division  had  been  using  the  Governor's                 
  contingency fund of $25.0.  She  said cutbacks had been done                 
  wherever possible.                                                           
  SENATOR JAY KERTTULA alleged that  the Division of Elections                 
  had misused appropriated  funds allocated  for the REAA  and                 
  CRSA elections, and now  the state was asked to  make up the                 
  SENATOR STEVE RIEGER  asked how  advertising money had  been                 
  spent.  Ms. Thickstun said in rural communities the division                 
  advertised when and where the election was going to be held.                 
  The division also advertises to  let candidates know when to                 
  file for seats.   She  explained this was  required by  law.                 
  Senator Rieger asked if the $23.5 was for  upcoming election                 
  newspaper ads or  were there unpaid invoices that  needed to                 
  be paid.   Ms. Thickstun admitted there were existing unpaid                 
  CHIP THOMA, representing himself, wanted to clarify that the                 
  expense of the  recall had  not caused the  overruns in  the                 
  Division  of  Elections.   He  said  that 50,000  names  and                 
  signatures  collected by  the  recall organization  had been                 
  checked  before  they  were  submitted  to the  Division  of                 
  Elections.  A calculation showed  that it took approximately                 
  one  minute to  look up  each name.   This  would amount  to                 
  approximately 800 hours,  or less than $10,000  of expenses,                 
  to check the recall signatures.                                              
  SENATOR TIM KELLY asked the status of the recall.  Mr. Thoma                 
  indicated approximately half of the 50,000 signatures needed                 
  for the second stage of the recall had been collected.                       
  Senator  Kelly  MOVED  for  passage  of  CSHB  68(FIN)  with                 
  individual  recommendations.  Co-chair  Pearce called  for a                 
  show of hands on passage of the bill, and the bill was MOVED                 
  on a  vote of 5 to  1 (Senators Pearce, Frank,  Kelly, Sharp                 
  and Rieger were in favor, Senator Kerttula was opposed).                     
  Co-chair Frank commented that he would like to have a better                 
  understanding of  authorizations to  spend and  supplemental                 
  appropriations that  came  before the  committee.    Senator                 
  Kerttula  said  a  report  was  due from  legislative  audit                 
  regarding this issue.                                                        
  SENATE BILL NO. 30:                                                          
       An Act  extending the  termination date  of the  Alaska                 
       Minerals Commission.                                                    
  Co-chair Pearce  directed  that  SB 30  be  brought  on  for                 
  discussion.  She informed the  committee that a revised zero                 
  fiscal  note  for  the  Department  of Commerce  &  Economic                 
  Development had been provided.  She explained that the  cost                 
  had already been appropriated in the department's budget.                    
  Co-Chair Frank MOVED and asked for unanimous consent that SB
  30 pass from committee  with individual recommendations  and                 
  the revised fiscal note.   No objection being raised,  SB 30                 
  was REPORTED OUT  of committee with  a zero fiscal note  for                 
  the Dept. of  Commerce and Economic Development.   Co-chairs                 
  Frank, Pearce, Senators Kelly, Rieger,  and Sharp signed the                 
  committee report with  a "do pass" recommendation.   Senator                 
  Kerttula  signed  the  committee  report  with a  "no  rec."                 
  Senator Jacko was absent and did not sign.                                   
  SPONSOR SUBSTITUTE FOR SENATE BILL NO. 47:                                   
       An  Act   relating  to  equipment,   registration,  and                 
       identification  of  custom   collector  vehicles;   and                 
       providing for an effective date.                                        
  Co-chair  Pearce  directed that  SSSB 47  be brought  on for                 
  Senator Kelly, sponsor  for SSSB 47, commented that the bill                 
  was not a significant bill but had to  do with improving the                 
  quality of life.                                                             
  End SFC-93 #16, Side 2                                                       
  Begin SFC-93 #18, Side 1                                                     
  MAX  GIFFORD,   legislative  assistant  to   Senator  Kelly,                 
  testified  that  SSSB  47  provided  that owners  of  custom                 
  collector  vehicles must equip  their vehicles  with several                 
  safety devices, and  provided for an exemption  for bumpers,                 
  hoods  and  fenders.    The  owner  may  register  with  the                 
  Department, pay a  $50 fee,  and if they  qualify, obtain  a                 
  vehicle identification number and special license plate.  He                 
  estimated that there  were approximately  200 to 250  custom                 
  cars in Alaska.   He directed attention to a letter from the                 
  Midnight Sun Street  Rod Association dated January  25, 1993                 
  (copy on file),  in support of  SSSB 47.   He explained  the                 
  fiscal note was in the amount  of $10.9 for plate production                 
  and estimated  income from  the $50  registration fee  to be                 
  Co-chair Pearce invited  Juanita Hensley, Chief, and  Jay N.                 
  Dulany, Director, Division of Motor Vehicles,  Department of                 
  Public Safety, to testify regarding SSSB 47.  JAY DULANY, in                 
  answer to Senator Kerttula's question, replied that the bill                 
  meant almost a break-even cost for the division.  Discussion                 
  followed between Senators Rieger and Kelly, Max Gifford, and                 
  Mr. Dulany regarding safety regulations for older cars.                      
  Senator Kelly  MOVED and  asked for  unanimous consent  that                 
  SSSB 47 pass from  committee with individual recommendations                 
  and the  attached fiscal note.   No objection  being raised,                 
  SSSB 47 was REPORTED OUT of committee with  a fiscal note in                 
  the amount of  $10.9 for the  Dept. of Public  Safety.   Co-                 
  chairs  Pearce and Frank,  Senators Kelly,  Rieger, Kerttula                 
  and  Sharp  signed the  committee  report with  a  "do pass"                 
  recommendation.  Senator Jacko was absent and did not sign.                  
                          Recess 8:25am                                        
                        Reconvene 9:03am                                       
           Alaska Railroad and Railroad Board Overview                         
  Co-chair Pearce invited members of the Alaska Railroad Corp.                 
  (ARRC) Board,  Mr. Robert  S. Hatfield,  Jr., President  and                 
  CEO, ARRC, Mr. Loren Lounsbury, Chairman of the Board, ARRC,                 
  and  Commissioners  Paul  Fuhs,  DOC&ED  and  Frank  Turpin,                 
  DOT/PF, to join  the members  at the committee  table.   She                 
  indicated that the board  members had been invited to  speak                 
  in  regard   to  unanswered  questions   previously  raised,                 
  regarding ARRC, during an overview for DOC&ED's budget.  She                 
  asked Mr. Hatfield to present an  overview of ARRC, and then                 
  asked members to present their questions.                                    
  ROBERT  HATFIELD  said  that in  1992,  ARRC  achieved gross                 
  revenues of $68M.  He itemized  the revenue as follows: $52M                 
  from freight, $8.5M  from passenger,  $4M from real  estate,                 
  and the remainder  from the  sale of used  materials.   Last                 
  year,  $13M  was  spent   on  capital  improvement  projects                 
  including $114.0 of  new rail, $14.0 of  right-of-way wooden                 
  and steel cross ties, 65,000 cubic yards of ballast, and the                 
  resurfacing of  164  miles  of  property.    He  stated  the                 
  railroad had improved  its safety record by about 30 percent                 
  and an  approximate 90 percent  "on time" had  been achieved                 
  for the freight  trains.   He explained that  in June  1992,                 
  ARRC entered a joint  venture and opened the Comfort  Inn in                 
  Anchorage.  It  had also  exercised a master  lease for  the                 
  120-acre  Ship  Creek Redevelopment  project.   Overall, the                 
  railroad showed a growth in passenger business.                              
  Mr.  Hatfield projected ARRC's emphasis for the next year to                 
  be  about  the  same.   He  pointed  out  that the  railroad                 
  business was  in a  very competitive  situation.   It hauled                 
  about 500  million gallons  of  petroleum products  annually                 
  from the North  Pole to Fairbanks.   The possibility of  the                 
  construction  of  a  pipeline  would  certainly  impact  the                 
  railroad's revenue.   In addition, the railroad  hauls about                 
  12,000 trailers  a year, 4,000 from the  lower 48, and is in                 
  direct competition with barge lines  and the highway between                 
  Anchorage  and Fairbanks.   He said other  areas of business                 
  that were competitive were  hauling logs and coal.   He said                 
  that  ARRC was unable to move  its tracks to another area to                 
  take advantage of  other markets.   It must use the  present                 
  tools available to become an asset for the state.                            
  Discussion  followed between Senator Rieger and Mr. Hatfield                 
  on how ARRC, Suneel Coal and Usibelli would share equally in                 
  the projected revenue decreases and increases.                               
  Co-chair Frank asked  Mr. Hatfield if  ARRC was planning  to                 
  open a hotel  in Fairbanks and use the same  scenario as the                 
  Comfort Inn in Anchorage.   He voiced his disagreement  with                 
  the railroad taking  an equity ownership  in a hotel or  any                 
  other  non-transportation  business.   He  felt  ARRC  was a                 
  public corporation, owned by the state,  and felt it was not                 
  appropriate for it  to be  in competition  with the  private                 
  Mr. Hatfield said that all decisions  were made by the board                 
  and the  board had  agreed not  to enter  into any  business                 
  unless  it  related  directly  to  the  railroad's  core  of                 
  business.  He  felt increasing  passenger business, and  the                 
  availability of hotel rooms were directly related.  He said,                 
  regarding  a similar  proposed hotel  project in  Fairbanks,                 
  ARRC had asked for input from the public and private sector.                 
  He did not know if  the board would approve a  hotel project                 
  in  Fairbanks, but said  there was no  formal hotel proposal                 
  before the railroad at this time.                                            
  In  Anchorage,  Mr.   Hatfield  explained,  the  Hospitality                 
  Associates had  come to the railroad with  a proposal making                 
  the builder,  operator, and land  holder all partners.   The                 
  board  felt  by putting  up  the  fair market  value  of the                 
  railroad-owned land as equity for a loan, ARRC could receive                 
  a  far greater value as a  partner than by leasing the land.                 
  He agreed there  was some risk involved but  the projections                 
  from two outside  sources showed  it to be  a good  business                 
  decision.  He pointed  out that in Seward, the  railroad had                 
  scheduled  a  meeting  for  public  input,  and no  one  had                 
  attended.   The board  than made  its decision  to join  the                 
  partnership.  He observed  it had been said that  ARRC could                 
  compete unfairly in  the hotel marketplace.   He stated that                 
  the  railroad  paid  property and  bed  taxes.   Hospitality                 
  Associates was  a larger  company than  the Alaska  Railroad                 
  Corp. and could  guarantee any shortfalls in revenue.   ARRC                 
  was responsible for  40 percent  of losses or  gains of  the                 
  project.  He felt any other land owner in Alaska could  have                 
  accomplished the same partnership if  they had chosen to  do                 
  LOREN LOUNSBURY, Chairman of the  Board, wanted to emphasize                 
  that there had been unanimous instruction  from the board to                 
  the  administration  that  ARRC would  not  enter  any joint                 
  venture  unless  everything  was  treated  fairly  with  the                 
  general  public   and  no   advantage  was   taken  by   tax                 
  repositioning or by the ability to borrow money at less than                 
  commercial rates.                                                            
  Co-chair Frank observed  that in  a report by  LBA (copy  on                 
  file) dated May  1, 1992, that  ARRC was 100 percent  liable                 
  for the  whole  debt if  a loss  should occur,  not just  40                 
  percent.    Mr.  Hatfield  and   Mr.  Lounsbury  agreed  but                 
  reiterated that ARRC felt that the Comfort Inn project was a                 
  good risk.                                                                   
  Co-chair Frank also said that the  same report stated that a                 
  $250.0  cash  call by  a partner  was  not received  and was                 
  renegotiated to zero.  Mr. Hatfield said he did not have the                 
  specific documents  with him  to address  this question  but                 
  negotiations   had  taken  place   in  a   typical  business                 
  atmosphere.  To charge fees to  the partnership did not make                 
  sense and that was why  a development fee had not been  paid                 
  to the builder or operator.  He  said that the hotel was now                 
  open,  a loan had been obtained, and all cash calls had been                 
  End SFC-93 18#, Side 1                                                       
  Begin SFC-93 18#, Side 2                                                     
  Co-chair Frank asked  if one  of the four  husband and  wife                 
  teams that  were  partners in  this  project, was  also  the                 
  builder.  Mr. Lounsbury answered one of the partners was the                 
  builder  and  no fees  were  paid  to him  for  building the                 
  project.    In  answer  to  Co-chair  Frank's  inquiry,  Mr.                 
  Hatfield agreed  to find  out the  book value  of the  other                 
  partners for the committee.                                                  
  Mr. Lounsbury asked to respond  to Co-chair Frank's negative                 
  position regarding ARRC's partnership in the hotel business.                 
  He pointed out that this was the only partnership, perceived                 
  as a non-transportation business, that ARRC was involved in.                 
  He  said  on behalf  of the  board,  ARRC did  not  have any                 
  intention of entering the grocery, hardware, or any business                 
  unrelated  to  transportation.    Because  of  the  possible                 
  diminishing freight  business, the  railroad  was trying  to                 
  expand passenger service, especially in the area of tourism.                 
  Because of cruise  ships into Seward, passenger  service was                 
  expected to increase.  The  Ship Creek Redevelopment project                 
  targeted tourism related activities and hoped to hold people                 
  over in Anchorage longer.  He added tourists staying even an                 
  extra day could mean a big difference to the economy of  the                 
  community.  He felt  the railroad was looking into  the sale                 
  of passenger packages,  such as cruise ships  use, combining                 
  hotel rooms, meals, etc.  to enhance revenues.  He  felt the                 
  board had never attempted to unfairly compete with anyone in                 
  the private sector.  He said that  if it hadn't been for its                 
  real estate holdings, not including  the hotel in Anchorage,                 
  the railroad would have been in the negative $2M.                            
  Co-chair Frank said a problem did not exist when ARRC leased                 
  its real estate to  businesses.  Mr. Lounsbury said,  in the                 
  case  of the  Comfort  Inn  project,  the project  had  been                 
  proposed to  the railroad.  Co-chair Frank felt his concerns                 
  were two fold; the actual impact in the event of a loss, and                 
  the philosophical problem  of the  state competing with  the                 
  private sector.   He said  these two concerns  were related.                 
  For example, if the hotel was losing money, room rates could                 
  be reduced by  ARRC to  gain more business,  and this  would                 
  directly impact the private sector.   He also felt the state                 
  should not take on the potential risk of this project.                       
  Mr. Lounsbury agreed that the Comfort Inn could be perceived                 
  as competition for the private sector but said the hotel was                 
  unique in  that it  had no  bar or  food service which  also                 
  reduced operating costs substantially.  He felt the partners                 
  in  this hotel had  a great  track record  and all  of their                 
  other hotels were  making money.   He also felt the  Comfort                 
  Inn did not  compete with  such hotels as  the Captain  Cook                 
  because of its  location and lack  of amenities.  The  board                 
  felt the decision  to go  into this partnership  was a  good                 
  investment decision  for ARRC.   He said the  railroad would                 
  continue to look at opportunities to help its bottom line.                   
  Senator Sharp asked if one of  the partners was the operator                 
  of  the hotel  and were  they paid  a management  fee.   Mr.                 
  Hatfield said operating  expenses but no management  fee was                 
  paid.  Senator  Sharp asked  if the board  had examined  the                 
  cost of the  hotel construction and  was any profit made  by                 
  the contractor in  constructing the building.   Mr. Hatfield                 
  and Mr. Lounsbury agreed that there  had been no profit made                 
  by the  partner who built the  hotel.  In answer  to Senator                 
  Sharp's question, Mr. Hatfield  said the total debt  for the                 
  150-room hotel was  $4.4M, but  was unable to  name all  the                 
  partners in the project.                                                     
  Senator  Sharp  felt that  tourism  was a  consideration for                 
  revenue in this hotel project.  He wanted to know if the law                 
  authorized  the  railroad  to  invest  in  logging  or  coal                 
  businesses.     Mr.  Hatfield   indicated   those  kind   of                 
  businesses, for example a sawmill, were traditional railroad                 
  business.  He felt one of the charges of the railroad was to                 
  help create economic  development in the state.   Discussion                 
  followed between  Senator Sharp  and Mr.  Hatfield regarding                 
  the lease of railroad land.                                                  
  Senator Kelly asked if  the railroad was able to  create bed                 
  space  and was that one of the  reasons the hotel would make                 
  money.  Mr. Hatfield  agreed that the location of  the hotel                 
  near the railroad was  one of the main reasons  ARRC decided                 
  it was a related business and that it would be profitable.                   
  Senator  Kelly said that ARRC was authorized to bond through                 
  the  legislature  and asked  if  ARRC  had done  that.   Mr.                 
  Lounsbury said, to his knowledge, ARRC had never gone to the                 
  legislature  for any  available exemptions.   Senator  Kelly                 
  asked how much  money had been  spent on improvements  since                 
  the state acquired the  railroad.  Mr. Hatfield said  he did                 
  not know the  exact amount but over $100M had  been spent on                 
  capital improvements since  state ownership.  Mr.  Lounsbury                 
  said the number was  available but he knew the  railroad had                 
  spent $50M on road bed improvements alone.                                   
  Senator  Kelly  asked  about  ARRC's  pension plan  and  its                 
  safeguards.  Mr. Hatfield said ARRC's plan was separate from                 
  the state's and  was over-funded at  this time with year  to                 
  year  growth  at  about 8  percent.   It  was  managed  by a                 
  committee made up  of members of management,  leaders of the                 
  labor organization, and a consultant.   In answer to Senator                 
  Kelly's question, Mr.  Hatfield answered that the  board did                 
  not have access  to the pension funds.   COMMISSIONER TURPIN                 
  said that ARRC's  pension plan was  less expensive than  the                 
  Senator Rieger asked how much  lease obligation the railroad                 
  had on the books at present.  Mr. Hatfield said the railroad                 
  had over  one thousand pieces  of land leased but  a list or                 
  their worth was not  available.  Senator Rieger said  he was                 
  inquiring as to any railroad indebtedness to leases that the                 
  railroad  held.  Mr.  Hatfield said the  railroad leased one                 
  building   in   Anchorage,  and   also   leased-to-own  some                 
  equipment.   He said  the long term  debt level  of ARRC was                 
  constant at  about  $20M which  did  not include  long  term                 
  equipment leases.   Mr. Hatfield  said that information  was                 
  available in their annual report.                                            
  Discussion followed  between Senator  Rieger, Mr.  Hatfield,                 
  Commissioner Fuhs  regarding Senator Rieger's  suggestion of                 
  converting ARRC to a stock company  owned 100 percent by the                 
  Co-chair  Pearce  asked  if  ARRC  could provide  a  written                 
  mission for the  railroad.  Mr.  Hatfield said the  railroad                 
  mission  statement  said that  the  ARRC would  provide high                 
  quality freight, passenger and real  estate services for its                 
  customers.    Those   he  felt  were  the   railroad's  core                 
  Co-Chair Pearce asked Mr. Hatfield if any of the other board                 
  members had  seen his  letter dated  July 1,  1992 (copy  on                 
  file), in response  to Mr.  Welker, Legislative Auditor,  on                 
  the  Ship  Creek redevelopment,  before  it was  sent.   Mr.                 
  Hatfield answered negatively.                                                
  Co-chair Pearce asked Mr. Hatfield to  provide a list of all                 
  lawsuits that the railroad was involved in and their status.                 
  Mr. Hatfield  said he  would provide the  list but  strategy                 
  regarding the  lawsuits was  confidential.  Co-chair  Pearce                 
  emphasized that she  was requesting status only,  and if the                 
  committee needed further information, it could be handled in                 
  an executive session.                                                        
  Co-chair Pearce said  that in past years,  passenger service                 
  on the railroad  had always been  subsidized.  She asked  if                 
  proposed packages  for  tourists  would  include  subsidized                 
  passenger service, or  would the railroad not  subsidize the                 
  passenger service in the  packages so they might be  fair in                 
  their competition with private entities.   Mr. Hatfield said                 
  at the present the railroad was not receiving any subsidy to                 
  cover   passenger  service.     Co-chair  Pearce   said  she                 
  understood  that   but  internally  the   passenger  service                 
  historically did not pay for itself.  Mr. Hatfield said that                 
  passenger service was about $.5M short of meeting costs.  He                 
  said  that the railroad was negotiating  with a cruise line,                 
  and in those type of packages,  the passenger costs would be                 
  fully covered.                                                               
  End SFC-93 18#, Side 2                                                       
  Begin SFC-93 20#, Side 1                                                     
  Commissioner  Turpin   pointed  out  that  when   the  state                 
  purchased  the railroad,  the  federal government  was being                 
  paid by  the state $.75M per year in passenger subsidy.  The                 
  legislature had expected to pay $2M  a year to the railroad.                 
  He  said,  instead the  railroad  introduced new  routes and                 
  services to improve the operation of the passenger service.                  
  Co-chair Frank asked whose  idea it was to build  the hotel,                 
  the railroad or the partners in the hotel.  Mr. Hatfield and                 
  other board members agreed it was  the partners that came to                 
  the railroad with the hotel proposal.  In answer to Co-chair                 
  Frank's  question  regarding  the  financial  statements  of                 
  partners not being  available to  the auditor, Mr.  Hatfield                 
  said that  it was not up to the railroad to release personal                 
  financial information of  the partners.   Mr. Hatfield  said                 
  that partnership financial statements were available but not                 
  the partners' personal financial statements.                                 
  Discussion followed between Co-chair Frank  and Mr. Hatfield                 
  regarding the  philosophy of  public and private  businesses                 
  and how they are run.                                                        
  Senator  Kelly asked how the  Whittier road would affect the                 
  railroad financially.  Mr. Hatfield said at the present time                 
  the  railroad  handled  175,000  passengers  in and  out  of                 
  Whittier each year, some being duplicates.  He said the road                 
  into  Whittier  would  cause a  decrease  in  this passenger                 
  traffic.  He  said because the overall  operation was losing                 
  money, it would  mean a net  benefit to the  railroad.   The                 
  Whittier shuttle does  generate cash  in the summer  because                 
  passengers  pay  in advance  and  freight customers  do not.                 
  COMMISSIONER FUHS said  the hydrotrain runs out  of Whittier                 
  and that was a profitable operation.   He explained that the                 
  hydrotrain  is  an operation  that  enables the  transfer of                 
  railroad cars from the barge to the train.  He said that the                 
  railroad would rethink the  whole operation in light of  the                 
  new road to Whittier.                                                        
  Senator Kelly confirmed  that the  railroad lost money  each                 
  year  on freight and passenger service but was subsidized by                 
  its real estate  holdings.  Mr.  Hatfield affirmed that  the                 
  loss each year was approximately $2M  and any net profit was                 
  received  from  its  real estate  operation.    Mr. Hatfield                 
  pointed  out that  70 percent of  the railroad  business was                 
  with  Usibelli  and  Mapco.   If  a  pipeline  was installed                 
  between the refinery and Anchorage,  the railroad would lose                 
  a significant amount of revenue.   He said, in addition, the                 
  export coal business  may not exist  in the next few  years.                 
  The  gas pipeline that  may go through  Fairbanks would also                 
  have  a  negative effect  on  the railroad's  revenue.   Mr.                 
  Hatfield  reiterated that passenger and tourist business was                 
  an important aspect in developing new revenue.                               
  Discussion followed between Senator Kelly, Mr.  Hatfield and                 
  Commissioner  Turpin  regarding  the   sale  of  the  Alaska                 
  railroad.    The point  was made  that railroad  real estate                 
  holdings  were  the only  reason  any individual  or company                 
  would be interested  in buying  the railroad.   Commissioner                 
  Fuhs  felt that  if the  railroad was  privately  owned, the                 
  public would lose a lot of services.                                         
  Co-chair  Pearce  directed  attention   to  a  letter  dated                 
  February 1, 1993  (copy on file),  from the City of  Nenana.                 
  She  said  that  Representative Jeannette  James  could  not                 
  attend  the  meeting  but  asked   the  board  for  comments                 
  regarding the proposed  ARRC's landfill  that could  compete                 
  with the City of Nenana's proposed landfill.                                 
  Commissioner Fuhs said that in the past few years, the board                 
  had discussed  the potential  of building  a waste  disposal                 
  site in a remote area along the railroad.  He said the board                 
  discussed  the  high  cost  of  toxic  and  hazardous  waste                 
  disposal, and how hauling and disposal of it could provide a                 
  source of revenue  for the railroad.   The construction  and                 
  licensing  of  these  disposal  sites  would  be  under  the                 
  auspices of different governmental agencies.   He said there                 
  had  been   discussions  with  Fairbanks   and  with  Nenana                 
  regarding their disposal problems.  He said a potential site                 
  had been chosen, and management had  met with DEC to discuss                 
  the ramifications of such a facility.                                        
  Mr. Hatfield directed attention to a newspaper article dated                 
  October  29,  1991  (copy on  file),  titled  "Waste becomes                 
  opportunity."   He agreed discussions had  been going on for                 
  some time regarding a proposed disposal  site.  He said that                 
  the railroad  had discussed  with the  City of Nenana  their                 
  proposed operation.  He felt the  letter from Nenana made an                 
  allegation  that  the   railroad  had  obtained  competitive                 
  information from Nenana.   He stated  the railroad had  been                 
  looking  at  building such  a  disposal site  since February                 
  1991.  He said the City of Nenana's project would take a lot                 
  of money to get started  but the railroad did not intend  to                 
  stand in the  way of their  proposal.  He said  the railroad                 
  could  handle  hazardous  waste  from  Nenana   since  their                 
  proposed site would only handle solid waste.                                 
  Co-chair Pearce asked that the  committee receive a copy  of                 
  the  railroad's  response  to  the  City  of  Nenana.    Mr.                 
  Lounsbury  said  that  the  administration was  planning  on                 
  meeting  with  Nenana  and Fairbanks  to  discuss  the waste                 
  disposal situation in February 1993.  Senator Kelly asked if                 
  it was Nenana's plan to draw  solid waste from Anchorage and                 
  Fairbanks.  Mr. Lounsbury said he did not know but suspected                 
  from Fairbanks.   Mr.  Hatfield added  that Nenana may  have                 
  proposed to handle waste barged down the river from the bush                 
  communities  as well as  other contracts.   He  said bridges                 
  that needed to be  built and other expenses, if  not funded,                 
  would stand in the way of Nenana's project.                                  
  Co-chair Frank asked if greater  earnings would be projected                 
  if  the  railroad owned  the  disposal site  themselves, and                 
  what, if any, was  the difference of owning a  disposal site                 
  compared to  a hotel.  Mr  Hatfield said a decision  had not                 
  been made about ownership.  He felt that  a company would be                 
  contracted to operate the disposal site who had expertise in                 
  that area.  Mr. Lounsbury said the railroad had been looking                 
  at  toxic hazardous  waste disposal,  not solid waste.   The                 
  railroad  planned  to  have a  licensed  and  highly trained                 
  contractor or train employees to handle such waste.  He said                 
  the railroad had  not come  close to making  those kinds  of                 
  decisions  or conclusions.  He said the toxic waste business                 
  was costly to  get into, complex,  but could produce  income                 
  and provide a service to the state.                                          
  Co-chair Frank cited  Sec. 42.40.280 of the  Alaska Statutes                 
  that said, "The board shall provide a state oversight report                 
  to the governor  and the legislature before  undertaking (1)                 
  expansion,  reduction,  or  diversification of  services..."                 
  Mr. Lounsbury said that ARRC would certainly comply with any                 
  section of the law that was  required.  Co-chair Frank asked                 
  if ARRC  went into  a partnership  with the hazardous  waste                 
  project  on  railroad land,  would  it  be approved  by  the                 
  legislature.  Mr. Lounsbury said that  he did not think ARRC                 
  would be required  to come before  the legislature for  that                 
  particular  project  but  reminded the  committee  that ARRC                 
  provided the legislature  with a annual report  and a 5-year                 
  projected plan.  Discussion  followed between Co-chair Frank                 
  and Mr. Lounsbury regarding the meaning  of the words in the                 
  statute "expansion of  services."  Senator Kelly  asked that                 
  the  board  have  Phyllis Johnson,  legal  counsel  to ARRC,                 
  review Sec. 42.40.280.                                                       
  Senator Kelly asked who else was on  the board of ARRC.  Mr.                 
  Hatfield  answered that  Frank Chapados  of Fairbanks,  Dale                 
  Lindsey of  Seward, and  Michael  Olson representing  labor,                 
  were the other board members.   Co-chair Frank noted that in                 
  a  recent  conversation, Mr.  Chapados  had agreed  that the                 
  railroad  should  lease  the  land  and  not  get  into  the                 
  operation of a  business.  Commissioner  Fuhs felt that  Mr.                 
  Chapados   was  in   agreement   with  the   hotel  project.                 
  Discussion  followed between  Commissioner Turpin  and Fuhs,                 
  Co-chair  Frank,  and   Mr.  Hatfield  regarding   different                 
  variations on lease and business investments by ARRC.                        
  The meeting was adjourned at approximately 11:00 a.m.                        

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