Legislature(1997 - 1998)
09/24/1997 09:00 AM Senate RLS
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* first hearing in first committee of referral
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+ teleconferenced
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SENATE RULES COMMITTEE
Fairbanks, AK
September 24, 1997
9:00 a.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman (Participated via teleconference from
Anchorage)
Senator Loren Leman, Vice Chairman
Senator Robin Taylor
Senator John Torgerson
Senator Jim Duncan
MEMBERS ABSENT
All members in attendance
ALSO IN ATTENDANCE
Representative Jeannette James
Representative John Cowdery (Participated via teleconference from
Anchorage)
COMMITTEE CALENDAR
SENATE BILL NO. 42
"An Act relating to the fiscal operations of the Alaska Railroad
Corporation and to land acquired by the State of Alaska under the
Alaska Railroad Transfer Act of 1982 or otherwise acquired for
railroad purposes; and providing for an effective date."
--PROFESSIONAL SERVICES CONTRACT AMENDMENT FOR JAMES JOHNSON
PREVIOUS SENATE COMMITTEE ACTION
SB 42 - See Senate Transportation Committee minutes dated 2/20/97
and Senate State Affairs Committee minutes dated 3/25/97,
3/27/97.
WITNESS REGISTER
Representative Terry Martin, Vice Chairman
Legislative Budget & Audit Committee
State Capitol
Juneau, AK 99801-1182
Jeff Cook, Vice President, External Affairs and
Administration
Mapco Alaska Petroleum
1150 H & H Lane
North Pole, AK 99705
Randy Welker, Legislative Auditor
Legislative Audit Division
P.O. Box 113300
Juneau, AK 99811-3300
Bill Sheffield, President & CEO
Alaska Railroad Corporation
P.O. Box 107500
Anchorage, AK 99510-7500
Representative Jeannette James
P.O. Box 56622
North Pole, AK 99705
Kevin Bergsrud, State Legislative Director
United Transportation Union
5325 E. 41st Ave.
Anchorage, AK 99508
John Simms, Vice President of Marketing
Usibelli Coal Mine
122 1st Ave. Suite 302
Fairbanks, AK
Jerry Burnett, Staff to Senator Randy Phillips
State Capitol
Juneau, AK 99801-1182
Tim Benintendi, Staff to Senate Rules Committee
State Capitol
Juneau, AK 99801-1182
ACTION NARRATIVE
TAPE 97-8, SIDE A
Number 001
SB 42 ALASKA RR BUDGET AND LAND
VICE CHAIRMAN LEMAN called the Senate Rules Committee meeting to
order in the Fairbanks LIO at 9:00 a.m. and noted the presence of
Senators Taylor, Duncan, Torgerson and Leman. Chairman Kelly
participated in the meeting via teleconference from Anchorage.
REPRESENTATIVE TERRY MARTIN, Vice Chairman, Legislative Budget and
Audit Committee (LB&A), testified via teleconference from the
Anchorage LIO.
Representative Martin noted that over the years the LB&A Committee
has received numerous requests for audits on the Alaska Railroad,
much of it having to do with the land and how the railroad was
using the land. As a result, it was suggested by LB&A that the
railroad be put under the Executive Budget Act so that the
Legislature has some oversight over the corporation.
Representative Martin said it is real problem when the Legislature
and the public do not know what is happening to this land, if the
state is getting fair value out of the land. etc. He emphasized
that placing the railroad under the Executive Budget Act is the
Legislature's constitutional responsibility.
Number 065
SENATOR TAYLOR asked if any legal research has been done on the
question of previous transactions by the railroad, and if, in fact,
those transactions are voidable . REPRESENTATIVE MARTIN responded
that as yet, the issue has not been addressed. SENATOR TAYLOR
expressed his concern that anyone dealing in good faith with the
railroad in one these transactions could find out that because it
violated the constitutional concerns that have been raised that the
contract is voidable.
Number 110
JEFF COOK, Vice President of External Affairs and Administration,
Mapco Alaska Petroleum, said Mapco has the distinction of being the
largest customer of the Alaska Railroad, accounting for about 32
percent of their freight volume and paying about $23 million in
freight revenues during 1996. Mapco is currently doing a major
expansion of their refinery and they will increase their shipping
volumes by the fourth quarter of 1998 by 50 percent. In addition,
Mapco is one of the larger tenants of the railroad in leasing from
them at the Port of Anchorage.
Mr. Cook related that in the last few years Mapco's relationship
with the railroad has improved immensely, that the railroad is an
excellent landlord, and that they are doing a good job and getting
value for their leases.
Mr. Cook believes that the Legislature and the state have every
right to know what is going on with the railroad, that there should
be periodic reports and access to financial reports and audits.
However, he cautioned against passage of SB 42 because Mapco feels
that the railroad needs to be flexible to meet uncertain changes
that may come along in the future.
Number 165
SENATOR TAYLOR questioned to what extent he believes the current
good working relationship with the railroad is based on current
personnel as opposed to previous personnel, and could that change.
MR. COOK responded that Mapco's long-term contract with the
railroad requires both parties to adhere to certain operational
principles, and they have set up the mechanism with this contract
to ensure that no matter who is there, they are going to have the
kind of relationship that they require or they are going to be able
to exit that contract.
SENATOR TAYLOR said the state owns the railroad but has very little
oversight as to the specific day-to-day management of it. He
expressed his concern that in the real world there are always
concessions granted and agreements made, etc., and he thinks it is
that concern that is the basis for the legislation before the
committee. MR. COOK responded that Mapco has external auditors
that audit them very carefully and the railroad has auditors as
well. He said business is very competitive out there, but he
believes business ethics are at an all time high in this country.
He emphasized that Mapco has a code of ethics in their company that
is abided by and they have a very excellent relationship in that
manner with the railroad.
VICE CHAIRMAN LEMAN commented that part of his district is the
Government Hill area, and he has been to a number of the community
council meetings and other neighborhood meetings in which members
have expressed some concerns about the relationship with the
railroad. He said these concerns, all together, help create an
environment for why something like this legislation comes into
play.
Number 265
RANDY WELKER, Legislative Auditor, Legislative Audit Division,
testifying via teleconference from Juneau, said he thinks the bill
before the committee should be looked at in two pieces: one is the
bill itself that brings the Alaska Railroad under the Executive
Budget Act, and the other piece is the appropriation itself to
accomplish the constitutional requirement. The intent is to
accomplish one very simple thing, which is to bring the railroad
under the Legislature's well established process of oversight and
review of state government. He added that the railroad is the only
entity of state government that does not participate in that
oversight process.
Mr. Welker said the only contact the division has had with the
railroad in recent past primarily has been through the audit
process. Usually something has already happened, there is concern
about something, and the audit division is called in after the
fact. The budget process, an annual oversight process, puts the
railroad in front of the Legislature and provides a forum for
discussing not only past concerns but future concerns as well. He
said that is all LB&A is looking for in trying to bring the
railroad before the Legislature.
Mr. Welker stated he disagrees with the railroad's testimony that
putting them under the Executive Budget Act will impair their
ability to do business. He pointed out that language vetoed by the
governor in last year's budget bill provided that the amount
necessary to operate the railroad would be appropriated to the
railroad. He said there were no limitations in that language, and
this process isn't envisioned to be one where the Legislature tells
the railroad how much they can spend on travel, or how much they
can spend on new railroad cars, etc. It is a process just to have
an open discussion, and the end result of that discussion is
general appropriation language in front of the appropriation bill
that says what they need for their operations is appropriated to
them. He said that kind of appropriation language allows the
railroad to operate the same way it always has.
Number 300
CHAIRMAN KELLY questioned what affect adding the railroad's
operating and capital expenditures to the budget appropriation bill
would have on the majority's efforts to hold down state spending
totals. He asked how much money this would mean in FY 2000, which
would be the first year this would come into effect. MR. WELKER
responded that he guessed it depends on what is considered the
state's budget. In reality, he would consider the operations of
the railroad as part of state expenditure right now and this would
not be increasing state spending. He told Senator Kelly that he
didn't have the actual numbers on the railroad's operating and
capital budgets.
Number 315
SENATOR DUNCAN made reference to Mr. Welker's statement that in the
last budget bill there was language providing that whatever the
railroad needed to operate would be appropriated. However, he is
concerned that by bringing the railroad under Executive Budget Act,
the Legislature can go a lot further than that in looking at their
level of travel, the level of supplies, equipment purchases, etc.
There are no assurances that that general language will continue.
MR. WELKER agreed that the capability is always there, but it is
not anything that he envisions in supporting this bill or in
supporting this process. He is not concerned that the Legislature
will get to the point where it begins micro managing the railroad.
Number 355
FORMER GOVERNOR BILL SHEFFIELD, President and CEO, Alaska Railroad
Corporation, assured the committee that the Alaska Railroad has
high business morals and high ethics in its operation, and it is
professionally run with good business people. The railroad has
internal auditors, external auditors, and performance audits on the
railroad itself.
Mr. Sheffield said the railroad is running at a profit and is on
budget, in fact, they are little bit above budget as far as their
profit is concerned. Their passenger service and freight service
have been strong this year. The barge service into Whittier from
Seattle and Prince Rupert has seen a major turn around and has been
very successful. The railroad is currently in the process of
finalizing its negotiations with Crowley to continue to be the
operator of the barge service.
Mr. Sheffield related that the railroad grosses and spends between
$75 million - $80 million. During the year 1999 that gross will go
to about $100 billion, or a little higher. All the money the
railroad makes goes back into the railroad. This year the railroad
has ordered eight new locomotives, which it will take delivery of
in late 1998 and early 1999.
TAPE 97-8, SIDE B
Number 001
Mr. Sheffield said the corporation has been doing a lot of planning
for the land owned by the railroad. They are going out and
marketing their property, planning for the communities on what the
highest and best use for that property will be.
The Mercer Group has just completed a performance on the railroad
as required by state law. He said each year they single out one
area, whether it be mechanical, or engineering, passenger service,
etc. He pointed out that the railroad cooperates in every way with
the auditors. He said they realize that the railroad and land is
owned by the state of Alaska, and while they are charged with the
responsibility of doing things for the railroad to make it
profitable, they also look at how their decisions affect the people
of the state.
Mr. Sheffield said the railroad is a government operation, but
working with the private sector continually. He stressed it needs
to remain flexible in order to respond to the needs of the
businesses it serves. If the railroad should have to go out and
borrow money, they could not obligate one legislature to the next
if they were under the Executive Budget Act. He also questioned
their ability to negotiate good contracts with the businesses they
serve it those businesses can't be assured that the railroad is
going to honor those contracts.
Mr. Sheffield expressed the corporation's willingness to have a
forum with the Senate and House every year to explain its business,
and he said they need more of those opportunities. He believes
the railroad is doing what it set out to do, and they are doing
their best to run it profitably and safe for the people of the
state.
Mr. Sheffield also expressed concern with transferring or selling
railroad land. He cautioned that with control of those lands comes
more liabilities for the state of Alaska, which the state doesn't
have right now because of the way the corporation has been set up.
Mr. Sheffield stressed that the auditors who audit the corporation
are professional auditors hired by the state of Alaska and they
show them everything they want to see, and the railroad is proud of
the way they have conducted their business.
Number 120
VICE CHAIRMAN LEMAN said he has had present and former railroad
employees tell him that the Legislature is on the right track in
suggesting that the railroad needs more scrutiny, etc., and he
asked Mr. Sheffield if he was aware of this and if the railroad has
some way for employees to voice their concerns where they would be
protected from exposure. MR. SHEFFIELD acknowledged this is a
concern, and he related a private hotline has been established
where any employee can relate problems. He said he also has an
open door policy to employees at all times and they can relate any
concerns or suggestions. In the past there has been a lack of
communication, but that has been improved upon this year. He also
pointed out that railroad employees are covered by five unions and
it took two years to negotiate the new contracts that were signed
last December.
Number 151
CHAIRMAN KELLY asked Mr. Sheffield the current status of the Ship
Creek Development Project and any future plans the railroad might
be looking at. MR. SHEFFIELD explained that as far as the railroad
is concerned, Mr. LoPatin has no status as a master leaseholder of
the Ship Creek development property. Mr. LoPatin thinks he has the
right to develop four parcels of land, and the railroad is in the
process of negotiating with him on the master lease, which they
believe has disappeared for lack of development. He is hopeful
this will be settled by the end of the year, and at that point they
will be able to plan more on how they want to go forward. A Ship
Creek task force has been appointed and the railroad is working
with the task force on recommendations for that area. After that
a master plan will be formulated for the development of that area.
Number 190
VICE CHAIRMAN LEMAN said Mr. Sheffield had expressed concern that
if the railroad was under the Executive Budget Act, it would impair
their ability to negotiate long-term contracts because these people
who would be contracting with the railroad would not be able to
rely on repayment as well as they do now. However, he pointed out
the state has entered into many long-term contracts, such as the
sale of royalty oil, and he is not aware of any cases where the
state is defaulting on paying off its obligations. He said he
understands the concept of not binding a future legislature, but on
the other hand, he has found that the legislature has been firm
about honoring the commitments of the state even if they have made
under past administrations or approved by past legislatures.
MR. SHEFFIELD reiterated his concern on what might be done by a
future legislature or a future administration. If the railroad
were to get pinned down to a line-item budget, they would have not
the flexibility to move within that budget system to do the things
they have to do. As the economy of Alaska increases, the railroad
increases, and he believes to have that disrupted could be
dangerous.
Number 230
SENATOR TAYLOR commented that what happened with the four dam pool
contract is a prime example of why he thinks Mr. Sheffield and the
railroad don't want the government to be intimately involved in its
affairs. He said the railroad should be operated and owned as
other railroads are operated and owned, which is by shareholders
who then elect a board of directors. He added that he didn't know
if any of the current board of directors or Mr. Sheffield as CEO
would be there if this were so because they would probably bring to
the table people who had lengthy experience and background in
running a railroad. He questioned why not do that or send a share
of stock out to all 600,000 Alaskans and see how they want the
railroad to run without any meddling by the Legislature. MR.
SHEFFIELD said that idea has been discussed and there might well be
a way to do something like that. However, he believes the state
should hold on to the railroad until it gets its transportation
corridors and infrastructure established because it is easier for
the state and federal governments to do that then it would be for
the private sector.
SENATOR TAYLOR said his main concern is that as long as there is an
illusion of state ownership and state responsibility, there comes
a requirement for some level of oversight and that somehow the
Legislature be involved in the process.
Number 345
REPRESENTATIVE COWDERY asked if it was correct that under the
federal ownership of the railroad, it had general accounting office
oversight on their funding, etc. MR. SHEFFIELD said he thought was
probably right, but he would get him more information on that
question.
CHAIRMAN KELLY noted that Mr. Sheffield indicated the railroad's
total spending will approach $100 million in 1999, and he asked Mr.
Welker what percentage increase that would be if that amount was
added to the FY 2000 budget. MR. WELKER responded it would be
approximately 4.5 percent, but he thought it would be a policy call
of how that's added into the spending plan. It is not a general
fund expenditure, but also, if it is recognized that it is already
an existing cost of state government, one could argue that it isn't
an increment at all.
Number 370
REPRESENTATIVE JEANNETTE JAMES said the Usabelli Coal Mine and
Mapco Petroleum as well as an air force base are all in her
district, so she has most of the Alaska Railroad customers in her
district. She has always been a supporter of rail transportation
because it is one of the most environmentally sound and safest ways
to move people and materials. However, when she first became
acquainted with the Alaska Railroad in 1993, as a freshman
legislator, she was distressed with its involvement in the Comfort
Inn in Anchorage, Eventually the regulations were changed so that
the railroad could not get involved in that type of transaction
again.
TAPE 97-9 SIDE A
Representative James said as a critic and a supporter of the Alaska
Railroad she has attended as many board meetings as she can. She
said she understands the railroad, and she cautioned against
government interference in their budgeting process. She pointed
out the railroad is on a calendar year, not a fiscal year, and
every single contract that they would negotiate would have to have
the caveat at the end "subject to legislative appropriation." She
said the railroad is different and customers will shy away if they
don't know if there is any kind of a stability, and the only way it
can be done is the way it is being done now.
In her closing comments, Representative James said she would be in
favor of privatizing the railroad.
Number 055
KEVIN BERGSRUD, State Legislative Director, United Transportation
Union, testifying via teleconference from Anchorage, said it his
understanding that all the corporations that are under the
Executive Budget Act mainly only deal with money or money
transactions whereas the Alaska Railroad needs more flexibility.
He believes that putting the railroad under the Executive Budget
Act will be setting up something like the Alaska Maritime System
which is a burden to the state and its people.
Number 070
JOHN SIMMS, Vice President of Marketing, Usibelli Coal Mine, said
his company's viewpoint is very close to the initial remarks Mr.
Cook made on behalf of Mapco, However, Usibelli's relationship
with the railroad is a little different because the 80 percent of
their product that moves across the railroad is not directly
contracted, instead they operate under a tariff basis. Usibelli
contracts for the leasing of land from the railroad on which they
will be producing coal in the future.
Mr. Simms said at one time Usibelli had significant operational
concerns as well as concerns regarding the responsiveness of the
railroad to upgrading its equipment. On both counts, from an
operational point of view and from an equipment point of view,
things have changed dramatically.
Mr. Simms said he agrees with previous speakers that there is
inherent danger about dickering with the status quo, and while
Usibelli believes the railroad has a responsibility to the
Legislature and the people of Alaska, he cautioned not to rock the
boat.
Number 115
SENATOR TAYLOR, speaking to Mr. Simms reference to future coal
production by Usibelli on land leased from the railroad, said in
the past there has been discussion and debate within the
Legislature about the manner in which DNR lets coal leases or oil
leases. He questioned if there is any jeopardy or concern about
the firmness of contracts entered into by the railroad or its board
if, in fact, those are appropriations of a state-owned resource,
whether it is the sale of coal leasing rights, or the sale of a
used engine. He suggested questions that need to be resolved
quickly are whether or not there is a true state ownership, and if
the playing field will be the same as if it were a DNR lease, or
will it be different because the land is being leased to Usibelli
by the railroad.
Number 150
MR. SHEFFIELD pointed out for the record that the railroad gets the
market rate for the leases on its land. REPRESENTATIVE JAMES added
that railroad land that is being leased gets on the locality's
property tax role.
Number 160
JERRY BURNETT, staff to Senator Randy Phillips, Chairman of the
Budget and Audit Committee, stated Senator Phillips supports SB 42
because it would open another line of communication between the
railroad and the Legislature, and it would clear up any
constitutional questions on the appropriation language for the
railroad.
SENATOR TAYLOR suggested that before the legislation moves out of
committee the constitutional issues relating to the delegation of
authority and whether or not expenditures made by employees of the
railroad or acquisitions by them fall within the appropriation
process of the Legislature are issues that should be addressed.
CHAIRMAN KELLY agreed that answers to those questions would be
provided before the bill is scheduled for further action.
There being no further testimony on SB 42, VICE CHAIRMAN LEMAN
stated the bill would be set aside.
VICE CHAIRMAN LEMAN stated the final order of business would be
consideration of an amendment to the James M. Johnson professional
services contract in the amount of $3,258.36.
CHAIRMAN KELLY moved approval of the amendment to the James M.
Johnson professional services contract. SENATOR DUNCAN objected.
CHAIRMAN KELLY explained it is a correction to a contract that was
entered into by the previous Legislature. TIM BENINTENDI added
that the work under the contract was performed, but it just went
beyond the contract provisions and was not addressed by the
previous Senate Rules Committee.
VICE CHAIRMAN LEMAN noted he has expressed the concern in the past
about the Legislature's management of legal contracts and the
relative inability to stay on top of them; however, the amendment
to this contract does not fit into that category.
SENATOR DUNCAN maintained his objection to the adoption of the
amendment to the James M. Johnson contract. There being no other
objections to the motion, VICE CHAIRMAN LEMAN stated the motion
carried on a 4-1 vote.
There being no further business to come before the committee, the
meeting adjourned at approximately 11:00 a.m.
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