Legislature(2009 - 2010)BUTROVICH 205
02/03/2009 01:30 PM Senate TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| Overview: Aviation | |
| Overview: the Alaska Railroad | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE TRANSPORTATION STANDING COMMITTEE
HOUSE TRANSPORTATION STANDING COMMITTEE
February 3, 2009
1:30 p.m.
MEMBERS PRESENT
SENATE TRANSPORTATION
Senator Albert Kookesh, Chair
Senator Linda Menard, Vice Chair
Senator Bettye Davis
Senator Kevin Meyer
Senator Joe Paskvan
HOUSE TRANSPORTATION
Representative Peggy Wilson, Chair
Representative Craig Johnson, Vice Chair
Representative Kyle Johansen
Representative Cathy Engstrom Munoz
Representative Mike Doogan
MEMBERS ABSENT
SENATE TRANSPORTATION
All Senate members present
HOUSE TRANSPORTATION
Representative John Harris
Representative Max Gruenberg
COMMITTEE CALENDAR
Aviation Overview
HEARD
Railroad Overview
HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
CHRISTINE KLEIN, Deputy Commissioner of Aviation
Department of Transportation & Public Facilities
Anchorage AK
POSITION STATEMENT: Presented a PowerPoint overview of the
Alaska Aviation System.
PATRICK GAMBLE, President, and Chief Executive Officer
Alaska Railroad Corporation
Anchorage AK
POSITION STATEMENT: Presented a PowerPoint overview of the
Alaska Railroad Corporation.
ACTION NARRATIVE
1:30:44 PM
CHAIR PEGGY WILSON called the joint meeting of the Senate and
House Transportation Standing Committees to order at 1:30 p.m.
Present at the call to order were Senators Paskvan and Kookesh
and Representatives Doogan, Munoz, Johansen and Wilson.
^Overview: Aviation
1:32:13 PM
Co-CHAIR WILSON announced the first order of business would be
an overview of the aviation system by Christine Klein. She noted
that Co-Chair Kookesh reminded her that the Senate committee
would leave following the aviation overview. The House committee
would continue and hear a railroad overview.
CHRISTINE KLEIN, Deputy Commissioner of Aviation, Department of
Transportation and Public Facilities (DOTPF), asked that
questions be held to the end of the presentation.
1:33:25 PM
CO-CHAIR WILSON recognized that Senator Meyer and Representative
Johnson had joined the committee.
MS. KLEIN said her role is to oversee airports and aviation. She
thanked members for holding a joint meeting. It's very helpful.
She explained that the overview will cover three areas: 1) the
status of the airports and aviation, 2) statewide rural airports
and 3) the international airport system. Under the status of
airports she will talk about strengths, some aviation concerns,
her focus, and some opportunities for the future.
MS. KLEIN reported that the Alaska aviation system is the
largest in the nation, and larger than the Russian federation
with 258 state airports. 173 airports have gravel runways and 45
are paved. There are 22 certificated airports, meaning they have
large numbers of enplanements and generally serve jet aircraft.
90 percent of Alaska communities are served by aircraft and more
than 149 communities have only airport access. Alaska has 16
times more aircraft per capita than any other state and more
than 10,000 pilots.
1:35:59 PM
Recently Northern Economics was contracted to look through the
aviation system plan grant with the FAA to determine what
aviation contributes economically to the state. It is
substantial, accounting for 47,000 jobs: 2,000 directly maintain
the airports, 25,000 are on site and directly support aviation
and 20,000 result from the multiplier effect. This is basically
10 percent of the jobs in the state covering both rural areas
and urban centers. The 2007 numbers show that $2 billion in
direct expenditures is due to the state's airports and $1.4
billion is indirectly related to aviation for a total
contribution to the state's economy of $3.4 billion. For Alaska
this represents about 8 percent of the gross state product while
the national average is 5.6 percent. Aviation obviously is very
important economically to Alaska.
1:38:20 PM
MS. KLEIN said that some of the concerns she wants to mention
include the day-to-day operations of the airports that have a
budget of $28 million and bring in $3.9 million in revenue.
About 96 percent of the airports in Alaska have received federal
funds for construction, which is good, but the state is
responsible for maintenance and operation according to Federal
Aviation Administration (FAA) guidelines. Other issues to keep
an eye on include the national economy and the volatility of
fuel prices. The latter is particularly important in rural
Alaska.
MS. KLEIN focused on opportunities and pointed out that to have
a strong economy, a strong transportation network is essential.
Alaska has a strong network, but we need to maintain it to
improve the economy in both rural areas and urban centers, she
said. Other areas of opportunity include aviation career paths.
This state has become a training ground for airport managers and
some have gone on to manage large airports in other states. She
emphasized the need to figure out how to retain some the
brightest that train here.
Better funding and standards of maintenance for this largest
aviation system is another area of opportunity. Since 1982 DOTPF
has spent $2.5 billion in federal funds to build airports
statewide. As previously mentioned, 1 in 10 jobs in the state is
aviation related and in Anchorage the ratio is 1 in 8.
1:41:26 PM
CO-CHAIR WILSON noted that Senator Bunde had joined the meeting.
MS. KLEIN said the focus in the last year has been to develop an
aviation system plan looking at safety, the sustainability of
the system, and customer service. The plan is paid with FAA
funding and DOTPF is using it to listen to customers, the public
and industry to figure out what areas need improvement and how
to make those improvements. An assessment of the economic
contribution aviation has made to Alaska has been done before
for the Anchorage airport, but not for the state's aviation
industry as a whole.
She thanked legislators for passing the Capstone Loan Program
last year to get equipment in aircraft that will reduce
incidents and improve safety. Quite a few loans have been taken
out, but not as many as they'd like. Also, DOTPF is working to
improve the mapping systems in the state and looking at making
safety videos for airport construction. Incurring safety
violations brings FAA violations. She is also looking at ways to
provide relevant training to airport employees, many of whom
have had to train on the job.
1:44:00 PM
Senator Menard joined the meeting.
MS. KLEIN mentioned sustainability of the state's airports and
again highlighted the report on the economic impact of aviation
on the state economy. She and her staff are looking at ways to
improve compliance with FAA grant assurances, land use and ways
to reduce lease rates at airports, ways to fund minimum
standards, maintenance backlogs, and training & apprentice
programs. They have identified that Alaska has the largest
aviation system in the nation and the least amount of funding.
More information on that will be forthcoming.
In the area of customer service her focus is to listen better to
customers and the industry. They are also trying to provide more
information about the many construction program requirements for
airports and looking at ways to help people work through the
department's requirements and find solutions through compromise.
1:47:05 PM
MS. KLEIN said she would next talk about current conditions,
projects, challenges and the future of rural airports. She
reported that Alaska has 256 state owned rural airports, which
is more than the country of Russia; 173 are gravel, 45 are
paved, 37 are seaplane based and there is 1 heliport on Diomede.
22 of the airports are certificated. DOTPF is trying to increase
runway lengths as funding is available but 80 airports continue
to have runways that are shorter than 3,500 feet. Alaska
actually has more than 300 airports, but 30 to 40 are owned by
BLM, municipalities, private individuals and other entities.
Some of the challenges the department faces in operating the
airports include the plethora of federal regulations, escalating
construction costs, environmental issues and operational
demands.
1:49:35 PM
MS. KLEIN displayed a slide showing construction cost challenges
and noted that in rural Southwest Alaska in particular costs are
extremely high. Environmental challenges include dust, which is
a particular issue in many Northwest Arctic villages. The
federal EPA and state DEC have both done monitoring and have
found that particulate levels can be high. This is a health
concern and can put funding at risk in those locations.
Chemicals and dust palliatives help with the dust issue and the
life of the runway, but they are costly. Flooding and coastal
erosion present other environmental challenges, she said. The
villages of Shishmaref, Kivalina, and Newtok are greatly
affected by coastal erosion and their airports may have to be
relocated. Another challenge is the maintenance funding to
operate airports. She displayed a line graph showing that the
maintenance and operations (M&O) budget increases have been
small and haven't kept pace with the Anchorage CPI. Increased
regulatory requirements to improve safety have been significant.
Examples include longer runways and improved lighting. She
pointed out that while the dollar isn't going as far, the $28
million that is budgeted has done a very good job on the 256
airports.
1:52:50 PM
MS. KLEIN next touched on looking ahead with respect to the
rural system. The infrastructure is largely in place and was
built with federal funds, but the grant assurances require the
state to provide maintenance or risk losing future federal
funding. For that reason she would suggest that in the future
DOTPF will transition from an era of airport building to an era
of maintenance and operation. Because maintenance funding is a
state responsibility, a new model will be required in order to
operate and maintain the rural airports. She reiterated that the
current cost for those 256 airports has been $28 million per
year and the revenue is $3.9 million per year. Primarily that is
from leases, permits and fuel flowage, but it's relatively small
compared to the international system. We want to be cognizant of
the relative lack of options when we increase lease rates, she
said.
DOTPF is looking at future funding needs for the statewide
airport system. For primary airports, which are those having
more than 10,000 enplanements a year, the capital program is
$427 million and for non-primary or smaller airports it is about
$900 million. Runway improvements account for the lion's share
of the funds and include the sub base and materials for
increasing the safety areas that FAA requires. The total funding
needs for rural airports throughout the state approaches $1.3
billion and the deferred maintenance program is $980 million.
Since 1982 the state has received $2.5 billion in capital
funding primarily through earmarks and the federal Airports
Improvement Program (AIP). General funds typically have been
used for deferred maintenance and life-safety programs. The
average annual improvement program from the FAA has been about
$200 million a year.
MS. KLEIN displayed a slide showing recent projects at some of
the primary airports including Aniak, Bethel, Cordova,
Deadhorse, Dillingham, Emmonak, Gustavus, Ketchikan, King
Salmon, Kodiak and Kotzebue. She did not include a list of
projects at the 62 non-primary airports, but would provide the
information on request. For FY09, Congress passed continuing
resolutions for the Airports Improvement Program that provides
first and second quarter funding of $54 million. Currently DOTPF
is waiting for Congress to vote on a third quarter continuing
resolution. With respect to the stimulus package, she said that
the airport industry has been working to get $3 billion
nationwide. Alaska has identified about $380 million in airport
projects for the regular and the stimulus programs. Other areas
that require attention and resources for the future are safety
and security regulations for smaller airports. Large airports
have dealt with this for years, and now the regulations are
being extended to small airports. She would like to return to
talk more about how DOTPF intends to operate, maintain and
sustain airports in the future.
1:58:44 PM
MS. KLEIN focused on the Alaska International Airport System
(AIAS), which was established in 1961. She described the system
as an enterprise fund that enables the two international
airports in Fairbanks and Anchorage to operate like a business -
taking in revenue, having checks and balances, and the ability
to redistribute funds within the system. AIAS also provides
diversionary locations to aircraft going long distances that are
in the same system. She added that Cold Bay and Sitka are
considered diversionary airports but they aren't operated within
the system.
2:01:10 PM
Last October Anchorage had some very poor weather and 19 wide
body jet aircraft diverted from Anchorage to Fairbanks, and
because Fairbanks is part of the system the revenues weren't
lost. Another advantage is that it enables aircraft to be
treated consistently and pay the same rates at the two airports.
Other strengths include strategic cargo location. With aircraft
today these airports are within 10 hours of 90 percent of the
industrialized world. It also provides a good fueling stop and
increases the payload versus range model. You are able to carry
more cargo if you carry less fuel. Another strength of AIAS is
that it serves a diverse cargo market with over 23 different
airlines, not one of which has more than a 12 percent market
share. Such a diverse customer base is unusual, she noted.
MS. KLEIN directed attention to a bar graph to show that the
growth in cargo operations has been steady. From 1998 to 2008
landings increased 2.8 percent and weight increased 4.2 percent.
The concepts are different and it's actually the certificated
maximum takeoff weight that determines airport revenue. Since
2006 there has been a 6 percent increase [in takeoffs] and 4
percent increase in weight. Another strength is the increase in
international passenger enplanements in Fairbanks from the
Japanese and European markets. That contributes $4 million to
the Fairbanks winter economy. Passenger numbers increased a
small but steady amount between 1998 and 2008; since 2001 growth
has been about 4.7 percent, serving 21 domestic and
international destinations.
MS. KLEIN pointed out that the international system and the
rural airports operate under very different models. While rural
airports rely on general funds to operate, the AIAS has to
operate on the revenues it brings in. She directed attention to
a pie chart that shows the diverse mix of revenue for the
international airports. Much of the revenue comes from landing
fees, cargo and passenger traffic and fuel flowage fees.
2:05:56 PM
MS. KLEIN said she wanted to go over FY08 activities because
there are concerns to be aware of. Total landings for FY08,
which was July 1, 2007 to June 30, 2008, were down about 5
percent. Cargo landings were down about 5 percent, passenger
traffic was up and fuel flowage was down. Reduced fuel flowage
was primarily due to the downturn in the economy. AIAS is number
1 in the nation and number 3 in the world in landed weight, but
there are things to be cognizant of because the aviation
industry is so very closely tied to both the national and the
global economy. We tend to forget that, but the AIAS is on the
front line when there are changes, she said.
MS. KLEIN highlighted the areas to watch closely: the national
and global economic recession; the weakened aviation industry
from bankruptcies, mergers and fewer flights; the fuel crisis;
heavy debt from various aggressive capital programs; projected
13 percent decline in FY09 cargo landings; is down, projected 11
percent decline in Anchorage passenger traffic and 3 percent
decline in Fairbanks passenger traffic. The International
Aviation Transportation Association (IATA) report just yesterday
said there was a 23 percent airfreight collapse in December. We
saw those declines more quickly than other airports in the
country and world, but the trend line was similar, she said.
MS. KLEIN reported that she recently finished renegotiated a new
operating agreement that has a more equitable distribution of
cost centers and revenue. International cargo will pay for what
it uses and passenger airlines will pay for what they use. The
previous 1980's model reflected more international traffic in
Anchorage. We're also working to reduce the operating budget and
have made a permanent reduction for the internationals to
hopefully be more competitive, she said. She credited her staff
at both airports for scaling back wherever possible and reducing
their '08 and '09 budgets. They also reduced their capital
program by about $300 million over 5 years and returned to a
system structure to be more competitive. Although many airports
in the country haven't been able to sell bonds, AIAS had a
successful bond sale on January 7 to refinance debt.
2:11:41 PM
Her staff and a third party who speaks Chinese are looking at
the Asian market to get a sense of what's going on. She noted
that a common concept in airport operating agreements is that
signatories guarantee the operating costs regardless of the
revenue. In Fairbanks the non-signatory airlines will pay a 25
percent premium. The AIAS rates are highly competitive with
other states and the rest of the world. In fact, they're some of
the lowest in the country. The infrastructure currently is
adequate for their needs, particularly when they operate as a
system.
MS. KLEIN directed attention to a slide showing ongoing
projects. The $99.2 million Fairbanks International Airport
project is ahead of schedule, below budget and within scope. The
$207 million Anchorage International Airport project is on
budget and schedule and includes both the A and B concourses.
Upcoming projects have been scaled back in response to the
difficulties in the aviation industry. They are looking at a
$200 million program over the next 5 years.
MS. KLEIN said we are competitive and responsive and will
continue to cut costs where possible to match the earned revenue
and traffic. They have maintained their rates and fees and have
a new operating agreement that reduced landing fees about 10
cents per 1,000 pounds of certificated maximum gross takeoff
weight. Also they have a new and good operating agreement that
was developed in partnership with the airlines. She offered to
answer questions.
2:14:58 PM
REPRESENTATIVE MUÑOZ asked her understanding of how much Alaska
aviation could be eligible for in the stimulus.
MS. KLEIN replied it's unclear but federal funding in the past
has averaged about $200 million a year and she envisions it will
be about that amount.
REPRESENTATIVE MUÑOZ asked it the 30 or so non-state-owned
airports would be eligible for those funds.
MS. KLEIN said yes.
REPRESENTATIVE JOHANSEN noted that he sent her a letter
regarding landing fees and asked when he could expect a
response.
MS. KLEIN recapped that his question addressed the capital
program excess revenues and whether or not projects had been
approved and were within budget and the revenues coming in. Her
response will be forthcoming shortly. "I think you'll be pleased
with it." Costs have been reduced and they have looked closely
at ways to reduce debt to keep rates and fees as low as
possible. Again she mentioned the successful bond sale to
refinance old bond debt. They are also looking at how they use
excess revenue to drive down rates and fees. But they do have to
meet the rather strict bond covenants. Total bond debt is about
$700 million.
2:19:20 PM
SENATOR PASKVAN referred to the drop in airfreight last December
and asked if the shippers have indicated how long the trend
might continue and if she has an opinion.
MS. KLEIN clarified it's the certified weight of the aircraft
that's measured. She said that they've been tracking cargo
numbers each month for several years and they saw fuel drop off
in November and December 2007. That change indicated that cargo
airlines already were improving their capacity and efficiency by
making fewer flights and loading more heavily. Since June the
monthly numbers have ranged down 17 to 20 percent from the prior
year, but the trend line hasn't changed.
SENATOR PASKVAN asked if she has an opinion about how long that
trend will continue or if the carriers have expressed an
opinion.
MS. KLEIN replied she anticipates it will continue for a year.
The aviation industry has indicated that it will be at least 9
months.
2:21:46 PM
REPRESENTATIVE JOHNSON noted that Northern Economics recently
reported to the fisheries committee and touted a certain number
of jobs. He questioned whether a job might be counted twice if
an airline flies fish.
MS. KLEIN replied she'd have to look at the particular report to
say for sure but it could be since an aviation job could be tied
to fisheries.
REPRESENTATIVE JOHNSON suggested that neither report is
dependable.
MS. KLEIN replied she couldn't comment since she hadn't seen the
report.
REPRESENTATIVE JOHNSON asked if she's having difficulty with
other departments with respect to mapping. He is interested in
how the Legislature can use the most accurate mapping procedure
such that everyone can utilize it without causing infighting
among departments.
MS. KLEIN responded that the safety mapping program was recently
transferred from the Division of Military and Veterans' Affairs
to aviation because it matches the mission of aviation and she
will learn more as time progresses.
REPRESENTATIVE JOHNSON offered his assistance.
2:24:23 PM
REPRESENTATIVE JOHNSON asked if she said that charges are based
on weight at take off.
MS. KLEIN recapped that landing fees are based on take off
weight. They're looking at changing that to landed weight but as
far as revenue is concerned, the difference is minimal.
REPRESENTATIVE JOHNSON asked if it's an actual weight.
MS. KLEIN replied it is not.
REPRESENTATIVE JOHNSON said his point is that he doesn't want to
double dip and charge for fuel twice. His other concern relates
to the fact that he isn't interested in operating a for profit
airport so it there's excess cash it ought to go back to his
constituents in the form of reduced landing charges and other
things. "I'm a little concerned about us having excess cash in
the government agency," he said.
MS. KLEIN explained that it's not the same as excess revenue in
a business because the revenue coming in is dictated by a
negotiated operating agreement between the airlines and the
airport. Some of the revenue that's collected is related to the
debt service and a certain amount of money has to be available
for operations in advance of the fees that will be collected.
REPRESENTATIVE JOHNSON informed her that in business, "cash" is
different than what she described.
MS. KLEIN assured him she would change the wording in the
presentation.
2:26:53 PM
REPRESENTATIVE DOOGAN asked for details on what was taken out
when the capital improvement program for the international
airports was reduced by $300 million over 5 years.
MS. KLEIN explained that the reduction came primarily from the
additional runway at the Anchorage international airport. The
other projects were fairly minor but would have impacted rates
and fees.
REPRESENTATIVE DOOGAN asked if that was referred to as the third
10,000 foot runway.
MS. KLEIN acknowledged it was.
REPRESENTATIVE DOOGAN asked what "returned to system structure"
looks like on a day-to-day basis at the two international
airports.
MS. KLEIN explained that the system initially was established
with an executive director and comptroller to oversee the
revenue and expenditures. Also there were checks and balances to
ensure balanced spending and fair rates and fees. Due to "winds
of the time," the system was changed in 1992 and the executive
director was moved into the Anchorage International Airport.
Currently she is recruiting a system director to operate a
standard system like others in the country with multiple
airports sharing revenue, resources and capacity. For some time
both Anchorage and Fairbanks have each had their own airport
manager. At present she is overseeing the international airport
system in addition to her normal day-to-day duties, and she will
continue to do so until the system director is selected and in
place.
2:30:11 PM
REPRESENTATIVE DOOGAN summarized that there is an airport
manager in both Fairbanks and Anchorage and each is responsible
for the day-to-day operations of the particular airport.
MS. KLEIN agreed; they focus on safe and efficient operations.
The system director's goals and priorities will be on the system
as a whole including policies, relationships with the airlines
and the communities.
CHAIR WILSON asked if the federal funds for airports that she
referenced, included the extra bump from homeland security.
MS. KLEIN replied the numbers on the slide did not include
Transportation Security Administration (TSA) funds. So far those
funds have been used for law enforcement at the certificated
airports. They are trying to get TSA to reimburse for
significant security requirements for baggage screening. At the
Anchorage airport, and with the C concourse, the un-reimbursed
cost for security screening was about $20 million. Hopefully
that will be covered in the stimulus program, she said.
2:32:42 PM
Co-Chair Wilson thanked Ms. Klein for the presentation.
The committee took an at-ease from 2:32 p.m. to 2:37 p.m.
^Overview: The Alaska Railroad
2:37:24 PM
CHAIR WILSON brought the House Transportation Committee meeting
back to order. Representatives Doogan, Muñoz, Johansen, and
Johnson were present. Senator Menard was also in attendance.
Chair Wilson announced that the final order of business would be
an overview by Pat Gamble, President, and CEO of the Alaska
Railroad.
PATRICK GAMBLE, President and CEO, Alaska Railroad Corporation
(ARRC), began his PowerPoint overview of the Alaska Railroad
Corporation (ARRC) by explaining that he has been with the ARRC
for eight years. He referred members to a copy of the 2008 ARRC
annual legislative report in their packets. He commented that
the report is not yet audited, which should happen in the next
month or so. He highlighted that the overall economic downturn
has affected the ARRC. He explained the ARRC's tendency to focus
on its biggest customer, Flint Hills Resources' Alaska North
Pole Refinery (Flint Hills). At its peak the ARRC moved a
billion gallons of jet fuel to the airport, which is now down to
600 to 700 million gallons and represents an overall 14 percent
reduction from 2007. He explained that since that is a high
margin project, it directly affects the ARRC's "bottom line."
He described the current situation as a scenario in which a 100-
car train is reduced to 85 cars, yet the expenses and crew costs
remain the same but the amount of product moved is less. He
related that the ARRC has worked to offset reductions in overall
freight by developing other business. He pointed out other
reductions in business such as cargo shipped by trailers reduced
by 12 percent. He related some positive notes for the ARRC, such
as that the ARRC transported more gravel this year. He noted
that one area that the ARRC is most happy about is export coal.
He explained that when the Korean market dried up, export coal
took a hit. However, he noted that the ARRC has partnered more
closely with Usibelli Coal Mine, Inc. in Seward in the operation
of the Seward coal terminal. Thus, the ARRC has observed an
increase in spot market coal. He commented that spot market coal
is typically short notice, but commands a higher price. He
related that brokers will send a ship to Seward on short notice
and the ARRC will bring in trainloads of coal to fill the ship.
While the ship arrivals are unpredictable and it is difficult to
manage during the summer with increased passenger travel, the
ARRC worked for several years to meet their needs, which has
proven to be profitable. He noted the ARRC is still looking for
long-term coal projects, with some interest generated in Chile,
Japan, and China. He further noted that these customers have
received sample coal. Thus, the spot market movement to those
customers is up. If the spot market trends continue, the ARRC
will achieve nearly the financial levels of the full-term
contract year through the spot coal market deliveries. He said
he hopes the ARRC can secure a long-term coal contract that
would span 5 to 10 years. In doing so, the ARRC could enhance
its capital investment in Seward, which would allow a faster
turnaround of coal for the ships, and would also increase the
ARRC's overall profitability.
2:43:31 PM
MR. GAMBLE reiterated that coal was good for the ARRC this year
and he hopes the trend will continue next year. He shifted to
discuss passenger revenue, which he said was possibly the fourth
consecutive record year for passengers. He surmised this is due
to rates and volume. He opined that it is not likely to happen
this year, given that pre-bookings are down about 10 to 11
percent. He surmised that late bookings can happen, and did in
2003. He commented that the ARRC is not as optimistic this year
and expects to see a leveling off of passengers. He surmised
that the in-state customers and retired travelers are expected
to remain steady.
MR. GAMBLE remarked that since his tenure, the ARRC is embarking
on its second five-year plan, with the first one completed in
2007. He explained that the ARRC has a rolling five year set of
goals, which are monitored and reported to its employees. He
related that it is a stoplight chart, that red indicates no
progress, yellow means okay, and green indicates progress. He
acknowledged that 2008 was a tough year for the ARRC. Mr. Gamble
pointed out the ARRC reduced its expenses by implementing a
hiring freeze in the latter part of 2007, which he anticipated
would continue into 2009. He commented that he personally
controls hiring all new employees. He then said:
Looking a little bit under the tent in 2009, as we
built the 2009 budget, not only do we have the hiring
freeze, but for management I've instituted a pay
freeze. And so, labor contracts will go as per normal.
Management's pay will freeze. We have really
strengthened our control over the expense side, not
knowing exactly how our budget is going to come out in
2009. So, we've really tightened up. We've actually
brought home a pretty decent budget, but a lot of it
depends on Flint Hills, and as long as that's up in
the air, the shift in good to bad is so fast and so
dramatic, that if we were to lose Flint Hills that
we're being very, very conservative as we go into our
2009 year.
MR. GAMBLE pointed out that its capital program, Collision
Avoidance, is designed to automatically prevent any two pieces
of equipment on the rail from colliding, whether it is trains or
work equipment. He related this is a developmental project that
has been in place for 12 years, and that the Congress has
mandated that all passenger and hazardous material carrying
railroads must have a program in place by 2016. Thus, the ARRC
is well ahead of the rest of the lower-48, he opined. He
acknowledged that the project is costly, although much has
already been spent in Alaska. He also mentioned that the ARRC is
currently undergoing operational testing with the Federal
Railroad Administration (FRA).
2:47:50 PM
MR. GAMBLE explained that the ARRC is an independent agency,
owned by the State of Alaska, governed by a seven member Board
of Directors (BOD). However, the ARRC is a "for profit"
organization, he noted. He stated that while the law requires
the ARRC to be sustainable, the ARRC BOD wants the ARRC to be
profitable in "running its trains." He explained that its
employees are railroad employees, and its defined benefit
programs are paid from earnings before net earnings are
computed. He related that the ARRC generated about $138 million
in operating revenue in 2008, which is up 5 percent overall,
despite that it is down about $4.8 million from the Flint Hills
Alaska North Pole Refinery. He highlighted that benefit costs
were up 34 percent over 2007, noting that the cost of benefits
in its defined benefits program are significant. He said that
the ARRC can currently cover its costs, but he said he was not
sure how long the ARRC will be able to sustain such substantial
increases without jeopardizing its profits. He informed members
that the ARRC's profits are reinvested in its capital program
since dividends are not distributed. He noted that fuel costs
increased $12 million over the budgeted amount. He explained
that fuel costs went from $2.50 per gallon for its locomotives
to $4 per gallon.
MR. GAMBLE further explained that the ARRC does not pay the same
price as consumers do at the pump since it purchases fuel
through hedge funds. Currently, fuel costs are at $1.30 per
gallon, he stated. He opined that it is tough to "build a
budget" with fluctuating fuel costs.
2:50:34 PM
MR. GAMBLE offered the ARRC's 2008 year-end figures. He detailed
that net earnings were projected at $16 million in 2008, but
were down to $13 million. He related that its capital program in
2008 was $93 million, of which $42 million was derived from
bonds, with $23 million derived from formula funds. He related
that the ARRC's total assets increased in 2008. He said he
anticipates that after audit, the ARRC's assets would be $850
million. He projected that 2009 revenues would increase by 3
percent, in part because the Flint Hills is forecast is
estimated to increase from its 2008 levels. Thus, the ARRC is
encouraged by the Flint Hills forecast numbers, he stated. He
related that the refinery provides regular forecasts, which
continually change. He mentioned that the ARRC has two premium
class passenger cars coming on line this summer, which will help
to increase revenue, as well as anticipated reductions to fuel
cost.
2:52:10 PM
MR. GAMBLE explained the ARRC's status on labor contracts. He
stated that currently the ARRC is negotiating one labor contract
and will soon start another. He said he anticipate that overall,
labor contract raises will go up as planned. Expenses will rise
by several million dollars, he said. He pointed out that
approximately 52 percent of the ARRC expenses are labor related.
He reiterated that management still will be frozen, which he
anticipated would save an additional $400 thousand. He turned to
page 6 of his PowerPoint, titled "Five-Year Forecast - Capital
Budget", and stated that the ARRC is in year 4 of 5 of its
project to rebuild the line from Anchorage to Fairbanks, funded
by bonds. He related that program is within budget and should be
completed by 2012.
MR. GAMBLE highlighted an increase in the number of moose killed
by trains, which has increased from 29 to 60 moose killed last
year. He explained personnel actions he has taken. He related
that the ARRC took steps by reducing its management team by 29
percent through layoffs, and that it also realized vacancies
through attrition and by keeping those positions vacant. He
further related that some 80 people were affected when the ARRC
reorganized and shifted 80 personnel, including 10 non-voluntary
layoffs.
2:55:08 PM
REPRESENTATIVE JOHNSON asked for clarification on the diesel
fuel prices.
MR. GAMBLE reiterated that the ARRC must "use diesel to move
diesel." Thus, the ARRC negotiates its price from the refinery.
Therefore, the ARRC does not pay for fuel at the regular pump
price.
REPRESENTATIVE JOHNSON inquired as to whether the labor
contracts are new contracts or negotiated contracts.
MR. GAMBLE answered that the contracts are not new. However, he
clarified that the contracts are based on the last year's
contract with items that the ARRC would like to negotiate. In
further response to Representative Johnson, Mr. Gamble responded
that the contract currently under negotiation is listed as 121
in the slide titled, "Alaska Railroad Quick Facts". He explained
that figure changes for the crews in the United Transportation
Union and the figure is actually closer to 195 when fully
staffed. He further explained that the American Train
Dispatchers Department consists of 10 employees, who are the
controllers that authorize the trains to start, stop, or move to
a railway siding. Overall, he mentioned that the ARRC membership
consists of 5 unions, and of the 715 employees, 550 belong to
one of these unions.
2:57:57 PM
REPRESENTATIVE DOOGAN asked for clarification on the ARRC's BOD
mandate that the ARRC must be profitable by running its trains.
MR. GAMBLE answered that the ARRC's sources of revenue are many.
He explained that the federal formula funds are given to transit
railroads and noted that the ARRC qualifies as a transit
railroad. He related that railroads review train performance,
which is called an operating ratio, dividing operating revenues,
such as revenues earned from customers by operating trains; and
operating expenses such as crew and fuel costs. Dividing the
expenses by the revenues determines a ratio. He opined that the
lower the ratio, the better. The operating ratio shows how
effective the train operation is as opposed to other sources of
revenues. Therefore, the ARRC's BOD does not want the ARRC to
count federal dollars as revenue to inflate the profitability of
the train operation. He opined it is challenging to make the
train operation profitable. Typically, passenger and freight
service is not operated together in lower-48 railroads, he said.
He stated that the freight trains produce more revenue than
passenger service, which is labor intensive. Some train
operating ratios in the lower-48 have operating ratios of .75 to
.85, whereas on a good date the ratio for the ARRC is .95, he
noted. In response to Chair Wilson, Mr. Gamble answered that the
ARRC was endowed with 36,000 acres, with approximately half
leasable. Land rentals from real estate are separate from the
operating ratio for train operations, he stated.
3:00:35 PM
MR. GAMBLE, in response to Representative Johansen, explained
that legislation that passed last year for land conveyances were
separate real estate issues. He mentioned that the 2012 project
was to rebuild the actual main line track. In further response
to Representative Johansen, Mr. Gamble answered that land
conveyances have not yet been completed. He mentioned the
difficulty of land conveyances since many parties are involved
in land conveyances, plus each case is different. He related
that constituents in Healy, for example, that would like to
purchase their property. Additionally, crossing issues arise,
and each one is worked independently by an ARRC committee. He
noted that the ARRC works with the DOT&PF on crossing issues and
on land conveyance issues. He offered to respond to
Representative Johansen specifically with updates.
REPRESENTATIVE JOHANSEN asked for an update on the 48 acres at
Eklutna.
MR. GAMBLE answered that the proposal is going well. He
explained that the ARRC worked to resolve the quarry issue, at
Eklutna, which was an Alaska Native Claims Settlement Act
(ANCSA) Alaska Native Regional Corporation and Alaska Native
Village Corporation issue combined. He related that the ARRC and
Eklutna, Inc. share property and ideas. He advised that the ARCC
reached an agreement and the village is satisfied to have the
quarry. He also mentioned that the ARRC also is partnering with
Eklutna, Inc. on a second phase of a Birchwood gravel project to
move several hundred thousand tons of gravel, including sharing
costs to build a rail to move gravel out. Additionally, a third
item is to attempt to swap land to allow Eklutna, Inc. to
develop houses on a contiguous piece of property. In turn, the
ARRC will obtain property in another area that will serve its
interests.
3:04:14 PM
REPRESENTATIVE JOHANSEN referred to a handout titled "Alaska
Railroad 2009 Program of Projects. He inquired as to whether the
ARRC could provide information later on the Seward Freight Dock
Expansion and the Whittier Master Planning projects. He asked
specifically for information on the volume of freight and the
change in activity in the two ports.
MR. GAMBLE answered that the ARRC is anticipating the gas
pipeline so the ARRC is extending the current dock. While the
ARRC has the property, it does not have room to bring in the
train to transport the additional pipe that is anticipated. He
related that the ARRC would like to ready that property in a lay
down yard because of the anticipation of a huge quantity of
incoming pipe. He opined that the project is within the confines
of the yard. The ARRC will clean the yard off, level it, and
create a lay down yard. He offered to provide a map to
Representative Johansen.
CHAIR WILSON inquired as to whether the ARRC is concerned that
endangered species actions being taken might impact port
operations.
MR. GAMBLE stated it is of secondary concern since the ARRC has
rail access into Whittier, Seward, and the Port of Anchorage.
Thus, anything that might hinder the business activity in these
ports would secondarily hinder the railroad. He offered that he
will continue to monitor the issue of any actions taken to add
endangered species to ascertain any future impact.
REPRESENTATIVE JOHNSON asked whether the ARRC's infrastructure
is "up to snuff" with respect to gearing up for a natural gas
pipeline or will infrastructure need to be upgraded in order to
ship pipe to Fairbanks.
3:06:50 PM
MR. GAMBLE related that the ARRC must do some things in order to
offload ships, primarily at the port level. Additionally, the
ARRC could do some things that would create transit
efficiencies. He said that the determination of whether these
projects are necessary or just "nice to have" will happen at the
time that logistics models are run. The run will examine the
velocity of goods and services being transported and examine the
transportation cost of truck versus the slower rail
transportation. He related that the ARRC is currently holding
discussions with Denali - the Alaska Gas Pipeline and
TransCanada Alaska Company, LLC. He related that some information
won't be available until the open season is through, at which
time the logistics personnel will be involved. He offered that
in the meantime the ARRC is "testing each other out." He
highlighted that the ARRC wants to be responsive to the project
needs as far in advance as possible. He related that the ARRC
must make some changes at the ports in order to be effective.
REPRESENTATIVE JOHNSON inquired as to whether any line
straightening or bridge work outside the port area that will
need to be done.
MR. GAMBLE responded that by the time the natural gas pipeline
construction begins, that the ARRC will have already funded what
little is left. He offered that the ARRC has spent seven years
on their line, has had a huge bridge program, which will
continue over the next several years. He detailed that the work
will continue south towards Seward on the on the light-volume
area, whereas work on the northern area that transports the
larger gross weights in the form of coal and gravel has already
been done. He said he's gone on record saying, "We're ready.
We're ready for a pipeline. We can move pipe now." However, he
noted that the ARRC can move pipe more efficiently once a few
projects at the port are finished.
3:09:10 PM
CHAIR WILSON asked for clarification of the Flint Hills Refinery
and whether the ARRC will need state funds in the future.
MR. GAMBLE stated that when Governor Palin reported that it was
in the best interests of the state to keep the Flint Hills
Refinery (FHR) open, it triggered actions and focus. He
explained that the ARRC is trying to review the value chain from
the FHR perspective to determine what it can and cannot do in
its current situation. He related that the ARRC wants to
anticipate the corporate decision making possibilities. He
stated the possibility exists that the FHR could either reduce
its refinery operations or could shut down the refinery and move
to a terminal only operation. He speculated that if the State of
Alaska (SOA) wanted to keep the FHR operational, that it would
need to analyze any viable options to keep it profitable on a
self-sustaining basis, outside of providing a huge subsidy for
the FHR's operation. He said:
Really, it's a business case. It's just a simple
matter, well, simple. It's just a matter of sitting
down and running the business case on each one of the
good ideas that people have. Yeah, the railroad should
own it. Okay. What are the conditions? What are the
costs? What are the revenues? How does the railroad
make money if it no longer has a customer to charge to
move petroleum, for example? That's where we make our
money. If it's all state petroleum and state railcars,
and state refinery, how do we make our money?
MR. GAMBLE, in response to Chair Wilson, answered that about 40
percent of its overall business is from FHR. He stated that one
value to the SOA that FHR doesn't calculate is jobs. He
highlighted that particularly in light of the downturn in the
national economy, that keeping jobs is a priority. He opined
that allowing the loss of 700 jobs may not be good politically.
Thus, the SOA will have a value compilation that is different
than FHR's value compilation. However, he opined it may turn out
that keeping FHR profitable may be in the best interests of
Alaskans. He said, "We don't know that until we run the
numbers." He surmised that FHR, Department of Natural Resources
(DNR), and the ARRC are all performing that analysis currently.
He offered that DNR has brokered several meetings thus far. He
related that the constitution mandates that the legislature will
make the final decision of what is best for all Alaskans. He
expressed confidence that the ARRC will provide the legislature
information with a factual basis to the legislature as opposed
to speculation. He said he anticipates that it will take the
three parties until about February or March to complete their
analysis.
3:13:23 PM
MR. GAMBLE mentioned that the fact that the current gas prices
allow FHR to make money, which they would acknowledge, whereas
when oil was at $140 a barrel, FHR lost money. He surmised that
the current oil prices will give FHR breathing room, as well as
for other companies.
CHAIR WILSON inquired as to whether Mr. Gamble could identify
the direction any assistance needs to go, such as to FHR or the
ARRC.
MR. GAMBLE, in response to Chair Wilson, answered that currently
he could not. He suggested that the examining the boundaries of
the problem could help. He explained that the ARRC is required
to operate on a sustainable basis, independent of the general
fund. He opined that it would not be a good idea to change that
structure. He characterized the current ARRC model as a good
model that is proven. He mentioned that several similar
boundaries exist. He stressed that any figures that the ARRC
presents will "not be tied to politics." He related that the
state is currently under scrutiny as an "Energy State." He
speculated that political ramifications could happen if the FHR
closes and the United States must import its energy from the
desert. He opined that would result in political debates. He
speculated that may be the reason why some people are suggesting
that it's in the state's best interest to keep the FHR
operational.
3:17:40 PM
There being no further business before the committee, the joint
meeting between the House Transportation Standing Committee and
the Senate Transportation Standing Committee was adjourned at
3:17 p.m.
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