Legislature(2005 - 2006)BUTROVICH 205
03/16/2006 01:30 PM Senate TRANSPORTATION
| Audio | Topic |
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| Start | |
| SB308 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 308 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
March 16, 2006
2:06 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator John Cowdery, Vice Chair
Senator Gene Therriault
Senator Hollis French
MEMBERS ABSENT
Senator Albert Kookesh
COMMITTEE CALENDAR
SENATE BILL NO. 308
"An Act authorizing the Alaska Railroad Corporation to issue
revenue bonds to finance rail transportation projects that
qualify for federal financial participation; and providing for
an effective date."
MOVED SB 308 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 308
SHORT TITLE: ALASKA RAILROAD REVENUE BONDS
SPONSOR(s): TRANSPORTATION
03/09/06 (S) READ THE FIRST TIME - REFERRALS
03/09/06 (S) TRA, FIN
03/16/06 (S) TRA AT 1:30 PM BUTROVICH 205
WITNESS REGISTER
PATRICK GAMBLE, President and CEO
Alaska Railroad Corporation
Department of Commerce, Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 308.
BILL O'LEARY, Vice President & CFO
Finance
Alaska Railroad Corporation
Department of Commerce, Community & Economic Development
PO Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 308.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Transportation Standing
Committee meeting to order at 2:06:15 PM. Present at the call
to order were Senators Therriault, Cowdery and Chair Huggins.
Senator French was in route and Senator Kookesh was excused.
2:06:46 PM
SB 308-ALASKA RAILROAD REVENUE BONDS
CHAIR CHARLIE HUGGINS announced SB 308 to be up for
consideration.
PAT GAMBLE, President and CEO, Alaska Railroad Corporation (ARR)
introduced BILL O'LEARY, Vice President, Finance, and CFO, and
said they would be testifying on the Railroad transfer statutes
that would be required in the event it would use its bonding
authority. He said HB 491 was the companion bill.
CHAIR HUGGINS asked about the status of the House Bill.
MR. GAMBLE replied that it was moving forward and would soon be
in Finance. He briefed the committee using a PowerPoint and
began by saying that the bonds are actually called capital grant
receipt revenue bonds and they are not to exceed $165 million.
Federal money has come to the Railroad consistently every year
for maintenance that was deferred between the rebuilding of the
railroad after WWII up and through the 80s until it was sold to
the state. When the feds knew they were going to sell the
railroad, they deferred a lot of capital improvements, so the
safety record wasn't good at the time of transfer. The main line
failed in a number of ways that caused derailments - as high as
60 to 80 per year.
2:09:08 PM
In 1996, the president of the Railroad, Governor Sheffield, and
Senator Ted Stevens went to Washington D.C. and gained
entitlements for Federal Transit Administration (FTA) funds
(funds that go to any railroad that carries passenger). Those
weren't enough at the time and Senator Stevens got further
increases. About $220 million has been put into the mainline of
the Railroad in refurbishment since 1996.
MR. GAMBLE said that FTA funds have expanded to $30 million per
year and today they were asking for the ability to use a portion
of these funds to pay off the debt service on the bonding. He
explained how they would use the money:
Without neutering the rest of our capital program,
because we're only going to use upwards of 50 percent
to pay off the debt service and accelerate the work
that's been done since 1996 to finish off the
refurbishment of the mainline of Alaska Railroad,
principally between Anchorage and Fairbanks, because
that's where the gross tonnage really occurs.
He said the refurbishment could be completed 7 to 10 years
sooner instead of not knowing what dollars it would get every
year and then reacting on short notice and not really putting
those dollars to work until middle of the year when the grant
process was finally complete. The Railroad could actually front
load the dollars, do the bond issuances and then have a stable
predictable work program, year-by-year-by-year all the way out
into the future to completion. The change would be significant.
2:11:44 PM
He related that the railroad wheels become worn after going over
rails where they come together and one of the features of this
refurbishment is that the rail would be welded all the way from
Anchorage to Fairbanks. Concrete ties would be used for curves
of 6 degrees or more, because they don't flex and would add
stability in a way wooden ties couldn't.
2:13:03 PM
SENATOR FRENCH joined the meeting.
SENATOR COWDERY asked if the concrete ties would be the same as
those used for high-speed trains in Europe and Asia - in an S
pattern that would mitigate side-by-side motion.
MR. GAMBLE replied no; they have a little bit of a bow to them.
The concrete tie manufacturing process is patented in the U.S.
where only two companies make them. The specs are quite
difficult to meet. If a tie is made wrong, forces from the
railroad cars will transfer through the rebar to the concrete
and actually break the tie up. If the Railroad created enough
demand for the ties, a manufacturing plant would be brought into
Alaska. Ties could then be backhauled to the West Coast.
CHAIR HUGGINS asked if the Railroad would haul pipe for the
gasline, because it would be too heavy for roads.
MR. GAMBLE replied that was correct. He said the engineering
detail is beginning to come out - 40 ft. sticks of inch-and-an-
eighth, 52-inch pipe - 1 ft. weighs a little less than 620 lbs.
You don't just lay them one against the other; you actually pack
them. Depending on how you pack them, four to six could probably
fit on a flatcar.
SENATOR COWDERY asked if the Railroad could handle 80 ft.
joints.
MR. GAMBLE replied yes, but probably only two or three at a
time.
SENATOR COWDERY said that is why he supported extending the
railroad to Canada.
MR. GAMBLE responded that the department's bridge program goes
hand-in-hand with the line refurbishment and it is still robust.
The stated goal of the Railroad is to be ready whenever the
pipeline requires it. He showed the committee a chart of
accident rates, project information and a summary of how money
was spent. An accompanying map showed work progression on an
annual basis.
The Railroad has to replace its wooden ties every 35 years and
it is now using Global Positioning System (GPS) to avoid
collisions and it is developing a program that actually shuts a
train down if it detects it is too close to another vehicle on
the line. The Alaska Railroad will probably be the first in the
United States to have that system working (in about 1.5 years).
2:20:00 PM
CHAIR HUGGINS asked if he anticipated getting some work done in
2006.
MR. GAMBLE replied yes if they get approval for the bonds. The
actual bond issuances would happen over the period of several
years. Each issue has to be approved by the Board individually.
SENATOR COWDERY asked if these bonds are like Garvy bonds.
MR. GAMBLE explained the difference between these and Garvy
bonds is that the Railroad would know exactly what it would get
every year. It is based on a formula for passenger track miles,
not appropriations. That formula escalates by a factor every
single year.
SENATOR THERRIAULT reminded him that all entitlements are still
subject to appropriation from Congress.
MR. GAMBLE admitted that was true, but the ARR entitlements are
linked to all passenger railroad entitlements in the Unites
States and if ARR's entitlement were stopped, the whole formula
would have to change - and the likelihood of that happening was
small. These are 12-year bonds and they are looking for one more
cycle.
SENATOR FRENCH said this looks like a totally safe investment,
but asked what risk there was in reference to the chart called
"Why Now."
MR. GAMBLE replied what little risk there is would be taken by
those who would be buying the bonds, because the full faith and
credit of the Alaska Railroad and the State of Alaska would not
be backing them. The interest rate should be favorable and
market indications are such that bonds are very low risk.
MR. GAMBLE continued explaining his chart. He concluded saying,
"So, we still have a very robust capital program with over 50
percent of our capital dollars still at discretion to spend on
other things."
2:26:32 PM
CHAIR HUGGINS asked him to explain why the Railroad is going
through this process.
MR. GAMBLE replied that the State Railroad transfer statute
demands it.
CHAIR HUGGINS asked him to explain language on page 2, lines 6-
9.
2:28:30 PM
MR. O'LEARY answered that language was suggested by the
department's Bond Council and it was designed to permit the
Railroad to refinance the debt that would come from issuing
these bonds. Language on line 7 says, similar to refinancing a
mortgage, you could actually raise the amount of the principal
in a refinancing transaction.
SENATOR FRENCH asked if the understanding was that overall, they
would save money because they would be refinancing at a lower
rate.
MR. O'LEARY replied, "Absolutely."
MR. GAMBLE pointed out that the Railroad may not need to issue
the total amount stated in the bill. For example, getting a
couple of FTA appropriations would significantly impact the
total needed to finish the project.
CHAIR HUGGINS asked what the alternative was if this bill
doesn't pass.
MR. GAMBLE replied that the Railroad would take the same amount
of money it was talking about using for the debt service on a
year-to-year basis and would continue to put a portion of that
into the main line. However, it would take as much as 10
additional years to get the refurbishment to where it was going.
CHAIR HUGGINS asked what the state's liability was in case of
default.
MR. O'LEARY replied that there was no liability to the state nor
to the ARR.
CHAIR HUGGINS found no further testimony or questions.
2:32:14 PM
SENATOR COWDERY moved to report SB 308 and from committee with
individual recommendations and zero fiscal note. There being no
objection, it was so ordered.
There being no further business to come before the committee,
Chair Huggins adjourned the meeting at 2:32:37 PM.
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