Legislature(1999 - 2000)
02/18/1999 01:35 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE TRANSPORTATION COMMITTEE
February 18, 1999
1:35 p.m.
MEMBERS PRESENT
Senator Jerry Ward, Chairman
Senator Drue Pearce, Vice Chair
Senator Rick Halford
Representative Andrew Halcro, Vice Chair
Representative John Cowdery
Representative Jerry Sanders
Representative Bill Hudson
Representative Allen Kemplen
MEMBERS ABSENT
Senator Mike Miller
Senator Georgianna Lincoln
COMMITTEE CALENDAR
Joint Meeting of the Senate Transportation Committee and House
Transportation Subcommittee regarding Airline Passenger Facility
Charges.
PREVIOUS SENATE ACTION
There is no previous action to report
WITNESS REGISTER
Mr. Ron Simpson, Manager
Airports Division of the
Federal Aviation Administration
Anchorage, AK
Mr. Kurt Parkan, Deputy Commissioner
Department of Transportation & Public
Facilities
3132 Channel Drive
Juneau, AK 99801-7898
Mr. Cliff Argue, Staff Vice President
Alaska Airlines/Airline Affairs Committee
Anchorage, AK
Mr. Mort Plum, Director
Anchorage International Airport
Anchorage, AK
Mr. David Jensen, Vice President
Reeve Aleutian Airways
Anchorage, AK
Mr. Paul Landis, Vice President
ERA Aviation
Anchorage, AK
ACTION NARRATIVE
TAPE 99-02, SIDE A
Number 001
CHAIRMAN WARD called the Senate Transportation Committee meeting to
order at 1:35 p.m. and announced that the full committee and the
House Transportation Subcommittee would hear testimony on Airline
Passenger Facility Charges. Present were Senators Pearce and
Halford. Also present were Representatives Sanders, Kemplen and
Cowdery. CHAIRMAN WARD invited Representatives Hudson and Halcro to
join the members at the table. CHAIRMAN WARD stated that
legislation on this issue, if needed, would be proposed by the
Transportation Subcommittees to the full committees for
consideration, with the committee chairs taking it under
advisement.
Number 044
MR. RON SIMPSON, Manager of the Airports Division of FAA,
Anchorage, stated he is responsible for the administration of the
Airport Improvement Program which provides federal funding for
airport infrastructure development. The Department of
Transportation (DOTPF) has requested an additional $25 million in
new revenue bonding authority from the Legislature to complete the
funding package for the Anchorage International Terminal
Redevelopment Project (AITRP) . Passenger Facility Charges (PFCs)
could be used to supplement available financing or fund shortfalls
without incurring an additional $25 million in bond debt for the
State of Alaska. By implementing PFCs, Anchorage would generate at
least $5 to $6.5 million in additional revenues annually. The
airport would be required to give up 50% of its Passenger
Entitlement Funds, about $1.5 million annually, but the result
would be a net gain of $3.5 million. The FAA has supported the
AITRP and the letter of intent, which is the long-term commitment
of AIP discretionary funds of $32 million for reimbursement over 2
years.
MR. SIMPSON stated the PFC application and approval process
requires full public disclosure, including public hearings,
consultation with the airlines, and publication in the federal
register for public comment. PFCs are collected for projects pre-
approved by the FAA and are project specific. For example, if
Anchorage International were approved for PFCs for only the
terminal redevelopment project, when the project is completed and
the bond debt is paid off, the PFC collection would be terminated.
Anchorage International would then have to reapply to collect PFCs
for future projects.
The FAA encourages airports to take advantage of every available
funding source for financing airport construction and development
projects. PFCs are the most viable funding source for large
airport infrastructure development projects. Pressure to implement
a PFC program may impact an airport's ability to receive AIP
discretionary funds which are allocated on a competitive basis.
For example, if Anchorage were competing for discretionary funds
with another airport that did have a PFC, taking advantage of every
available funding source, the other airport would be more likely to
be awarded discretionary funds to make their financing package.
Over 300 airports are approved for collection of PFCs, and over 100
applications are currently being processed. Estimated collections
based on current approvals for Jan. 1, 1999 through Dec. 31, 1999
exceed $1.4 billion nationally. Over 3500 airports are eligible to
receive the limited AIP discretionary funds.
Juneau International and Ketchikan International airports are
approved for PFC collection. Juneau's application was approved in
April 1998 and collection began last October. Ketchikan's
application was approved in December 1998 and collection began this
February. The FAA has not received any complaints as a result of
implementing PFC programs in Juneau or Ketchikan. Prior to Juneau
initiating the PFC collection, Alaska was one of only two states
without an airport participating in the PFC program.
Several of the AIP reauthorization proposals currently being
considered by Congress include an increase in the maximum PFC an
airport can collect, from $3 per segment to $4 or maybe $5 per
segment. If these proposals pass with AIP reauthorization, the
large to medium hub airports that elect to raise their PFC charge
to more than $3 will likely forego 100% of their Passenger
Entitlement Funds and face new restrictions on the use of AIP Cargo
Entitlement Funds. AIP funds for large to medium hub airports will
then be limited by federal mandate, such as meeting safety,
security and environmental requirements.
MR. SIMPSON said that whatever level of PFC is implemented, this
legislation which has been in effect since 1990 authorizes PFC
collection at the first two participating airports on the outbound
trip excluding the destination airport. On the return trip, the
last two participating airports, excluding the destination airport
are authorized for PFC collection. This would remain the case with
any new legislation. Airlines collect this fee as part of their
ticket price, and remit PFC revenues to the specific airport that
is PFC-approved.
There are legitimate concerns regarding the impacts that PFC
collection will have on rural Alaska. Currently there is strong
support for, and strong opposition to, increasing the PFC limit in
Congress. During the last AIP reauthorization, all PFCs for
business were dropped from the omnibus bill because the industry
had not reached consensus on the maximum PFC limit. However, the
FAA has the authority to approve PFC exemptions by administrative
action. Juneau requested exemptions in their PFC application for
several routes to rural communities. The FAA approved Juneau's
exemptions by administrative action without federal legislation,
direction or mandate.
Alaskans already pay PFCs when they fly outside of Alaska. PFCs
are charged on flights to Seattle, Portland, San Francisco, Salt
Lake City, Denver, Minneapolis, Chicago; in short, every major
airport with connections from Anchorage. Alaskans are paying up to
$6 one way, $12 round trip in PFCs to help finance development
projects in those other airports. None of the funding remains in
Anchorage International because the airport has not applied for
PFCs.
Number 181
MR. SIMPSON summarized by saying the FAA believes PFCs should be an
integral part of the Anchorage International Terminal Redevelopment
financing package. The FAA stands ready to move forward on a PFC
application once it is received. He asserted that the FAA is
sensitive to the concerns about the impacts the PFC will have on
rural Alaska and is willing to work with Anchorage International to
craft exemption language with PFC applications to address those
concerns.
Number 194
REPRESENTATIVE COWDERY asked Mr. Simpson how long the Anchorage
International application would take to implement. MR. SIMPSON
responded the FAA has 180 days to process a formal application for
approval from the date of receipt. From a policy standpoint, the
FAA likes to work with an airport in advance of receiving a formal
application by putting together a draft application, which for
Anchorage could include draft exemptions. It coordinates with FAA
headquarters office in Washington D.C. and gives feedback to the
airport to complete and finalize the application. During the 180-
day review, the PFC proposal must be published in the Federal
Register for public comment and response.
REPRESENTATIVE COWDERY asked if Kenai airport has applied for the
PFC. MR. SIMPSON replied that Kenai has considered applying but
has not approached the FAA with a formal proposal.
REPRESENTATIVE COWDERY asked if Mr. Simpson had said the airports
would bring in $5 to $6 million. MR. SIMPSON answered yes, the
estimates are $5 to $6.5 million additional revenues annually;
however, the airport would have to give up 50% of its past year's
entitlements, about $1.5 million annually, for a net gain of $4 to
$5 million in revenues annually.
Number 235
REPRESENTATIVE HALCRO asked Mr. Simpson to explain how the FAA can
circumvent, by administrative action, the current statutes and
regulations not allowing exemption of rural communities. He gave
the example of Juneau's exemptions.
MR. SIMPSON replied that the City & Borough of Juneau requested the
following classes of air carriers be excluded from the requirement
to collect PFCs-- all those operating between Juneau and: Chatham,
Funter Bay, Gustavus, Petersburg, Wrangell, Yakutat; and all air
carriers deplaning 1,000 or less passengers annually at Juneau.
All were approved by the FAA except for the route between Juneau
and Gustavus.
The PFC regulation as written excludes collection by carriers who
fly to locations that receive the individual air service subsidy as
well.
REPRESENTATIVE KEMPLEN asked Mr. Simpson what projects are funded
and what numbers are involved relative to Alaska, in the AIP
discretionary funds allocated on a priority basis to airports with
PFCs. MR. SIMPSON responded AIP funding is somewhat complex.
Anchorage International receives funding from 3 different
categories: passenger entitlements, cargo entitlements and
discretionary dollars. The first two are by formula, from
authorization from Congress that is distributed pro-rated for each
airport based on the number of passengers and the amount of cargo
service. Discretionary dollars are at the discretion of the FAA to
be applied to high priority projects, primarily those that improve
safety, capacity, security or environmental concerns. Those funds
are primarily used at the national level when an airport does not
have enough of one or both kinds of entitlement funds to fully fund
a project. The FAA is always asked, where is Anchorage
International on implementing PFCs. If Anchorage International is
competing with another airport in the Lower 48, and both have high
priority and worthy projects but the other airport uses every
available funding source including PFCs while Anchorage does not,
it's more likely that the FAA will provide discretionary dollars to
complete the other airport's funding package. Over 3500 airports
compete for those discretionary dollars.
REPRESENTATIVE KEMPLEN asked the total discretionary dollars
available. MR. SIMPSON replied over the last few years the State
of Alaska has been able to secure a little over $90 million in
total AIP funding. About $20 million to $25 million of that has
been discretionary dollars, or about a quarter of the funding
through the AIP program.
REPRESENTATIVE COWDERY showed the committee a copy of a check from
Reeve Aleutian Airways. CHAIRMAN WARD clarified that basically
we're sending these dollars, in this case $1500, to Seattle.
REPRESENTATIVE COWDERY explained it was for some tickets sold in
Western Alaska to go south, possibly from Dutch Harbor.
Number 339
MR. KURT PARKAN, Deputy Commissioner, Department of Transportation
& Public Facilities, stated the Administration supports PFCs, and
supported them in 1996 when the department submitted the request to
the Legislative Budget & Audit Committee for a fund source change
for projects at Anchorage and Fairbanks airports. The department
supports PFCs as a fund source that can be used for capital
improvement projects at airports. Unlike a tax that goes into the
General Fund that can be used for any purpose the legislative body
chooses to spend it on, the PFC is a pure user fee with the money
coming directly from the people benefiting from the facilities and
going right to the improvement of those facilities.
CHAIRMAN WARD asked when the Governor will introduce legislation.
MR. PARKAN replied that legislation is not necessary to collect the
PFCs. In 1996 when the department proposed the PFCs to LB & A, the
committee expressed concern that there might not be adequate
support. The committee held hearings in Fairbanks, Anchorage and
Kenai and heard a lot of testimony from legislators, rural
communities, regional carriers and air carriers serving rural
communities indicating that there was not adequate support for PFCs
at that time. There was a sense of inequity and of placing an
undue burden on rural communities without roads that have no other
option but to fly in and out. DOTPF pulled back, and the Governor
advised that PFCs would not be pursued until there was a program
with broad public support that reflected the unique nature of the
state.
From fall 1996 through January 1997, DOTPF talked with carriers who
had expressed concern, Warblow's in Fairbanks and Northern Air
Cargo in Anchorage, and worked with FAA staff in Anchorage to try
to craft a program addressing the concerns of rural communities.
DOTPF looked for a way to exempt small communities off the road
system.
The FAA believed their administrative procedures would not allow
that kind of blanket exemption. The mutual conclusion was that a
legislative fix by Congress was needed for that kind of exemption.
The department worked with the FAA, Senator Stevens' office and
John Katz's office in D.C. to draft language the FAA submitted to
the Administration for inclusion in the Administration's proposal
for the AIP reauthorization. That language was modified a little,
with input from Senator Stevens. The legislative session ended
without agreement on the whole package, and it was decided to
extend the whole program for six months without making substantive
changes to it.
DOTPF is now working with the delegation again to get this language
inserted into this year's reauthorization bill package. The AIP
funding in the program expires March 1, 1999, and the delegation is
under a lot of pressure to take care of this. MR. PARKAN stated he
doesn't feel it's likely to happen because it's too contentious an
issue, principally because the airlines don't support the increase
from $3 to $5. The airports do support the increase because they
see the need for capital improvements.
SB 82 passed out of the Commerce Committee last week and has
exemption language close to the old language, and with minor
modifications, can move the PFC program forward. Mr. Simpson
called DOTPF recently and suggested the department pursue PFCs. He
asked that the department look at the Juneau application, and he
shared the record of decision on Juneau to see if there is a way to
do it administratively and not go the legislative route. DOTPF
would rather go through the Legislature to get the needed
exemptions rather than go to Congress; however, legislative fixes
are not the preferred alternative if it could be done
administratively. A consultant is looking at the Juneau point-to
-point exemption by community based on the total deplanements going
to each town. DOTPF will try to get the roadless area exemption
it's seeking, but will continue to try for the legislative fix as
well.
Number 434
CHAIRMAN WARD asked Mr. Parkan, for the record, for a copy of the
original administrative proposal, before S. 82, that DOTPF took to
Senator Stevens. MR. PARKAN replied that he would provide it.
REPRESENTATIVE HALCRO stated that in 1996 there were 30 communities
that enjoyed EAS subsidies and he asked Mr. Parkan how many there
are now. MR. PARKAN replied that in Alaska the EAS communities
haven't changed for several years.
REPRESENTATIVE HALCRO discussed the exemptions for roadless
communities, stressing that they still get off in Anchorage and
still impact the airport and its services. From rural communities
like Barrow, Nome, Kotzebue, the average fare for a supersaver is
$350; a PFC of $3 on those tickets appears to him to be nominal.
However, on a one-way trip from Kenai at $58, the $3 PFC would have
a much greater impact on the price of the ticket. He stated he is
concerned with exempting communities where they already pay $350
for the airfare but comprise a much smaller percentage of travelers
than those from Kenai or Homer on weekend fares.
MR. PARKAN replied he's making the same case DOTPF made in 1996.
It is reasonable to ask people who use airports to contribute to
their improvement. The department received strong opposition from
various areas of the state. He stated he would not want to make
comparisons between Kenai with a smaller ticket price, and rural
Alaska with a high ticket price, only that all the passengers who
go through the Anchorage airport benefit from it.
Number 477
REPRESENTATIVE HUDSON asked Mr. Parkan if he is saying that no
legislation is needed in order for the Administration to place the
PFCs in effect. MR. PARKAN replied the department wants the
legislative endorsement of PFCs before it goes forward with the
program. He clarified that the Commissioner has statutory
authority over the international airports, including Fairbanks and
Anchorage.
REPRESENTATIVE COWDERY said that he has drafted a joint or
concurrent resolution. He asked Mr. Parkan if the legislature
passed a resolution, would the department be ready to start
immediately? MR. PARKAN replied yes, the endorsement by the
legislature for PFCS would give the department a "jump start."
DOTPF would still be working to get the exemptions, but the
endorsement would be absolutely important.
CHAIRMAN WARD asked if Juneau applied for the PFC, received it, and
then applied for the exemptions. MR. PARKAN replied he is unsure.
SENATOR PEARCE asked if the department went to LB & A in 1996 for
authorization to accept the money. MR. PARKAN responded the DOTPF
was looking for a fund source change in order to include PFCs as a
fund source.
SENATOR PEARCE asked if there would need to be authorization in the
FY 2000 budget to accept the money and spend it. MR. PARKAN
replied the Attorney General's opinion states that DOTPF can apply
for the PFCs by statutory authority. The money comes into the
department's revenue fund and can be spent for projects; but the
additional money would need authorization to apply to a particular
project at some point.
CHAIRMAN WARD stated his appreciation of Representative Cowdery
bringing forth the recommendation that the two committees introduce
a resolution. He suggested the Administration should present a
request, and SENATOR PEARCE clarified it should be a budget
amendment.
Number 521
SENATOR HALFORD asked for an update of the top 8 revenue-generating
airports that are listed as Deadhorse, Kodiak, Birchwood, King
Salmon, Galena, Bethel, Nome and Unalaska. He stated that one seems
out of place on the list.
MR. PARKAN replied that he guesses Birchwood airport is the only
state-owned airport outside of the Alaska international airport
system that pays for itself.
MR. PARKAN referred to a handout showing the PFCs being charged and
the money going out of state.
SENATOR PEARCE asked if PFCs are charged in every airport you land
in, or every airport that you change planes in, or your
destination?
Number 548
MR. PARKAN gave an example of a ticket from Fairbanks to San Diego.
On the Fairbanks-Anchorage-Sea/Tac leg, the passenger pays $3 on
the outbound to the Sea/Tac airport; and on the return trip, he
pays $3 to San Diego and $3 to Sea/Tac, for a total of $9 collected
by airports outside of the state.
The program says the first 2 airports of emplanement outbound
charge the PFC, unless it's the same flight number; on the return,
the last 2 emplanement airports before the final destination
collect the PFC.
Using the same example of the Fairbanks/San Diego round trip, if
Fairbanks and Anchorage had the PFC, the first PFC would be
collected in Fairbanks and the second in Anchorage unless it's the
same flight number. On the return, the final two emplanement
airports, or Seattle and Anchorage, would collect. On that ticket,
$12 would be collected, with $9 staying in the state.
He said that Mr. Simpson's numbers of $5 to $6 million are
accurate, based on emplanements without exemptions. Exemptions
would reduce it maybe 25-30%.
REPRESENTATIVE COWDERY asked if the money could be utilized for
past projects. MR. PARKAN replied that is correct, it can be used
for future projects or previously completed projects. The
department plans to use it to pay back bonds to defer the cost of
the terminal project.
REPRESENTATIVE HALCRO asked if the department has figures for the
revenue generated if there were no exemptions. MR. PARKAN
responded that based on FY 99 emplanements, they expect Anchorage
without exemptions to collect just under $4.9 million. In
Fairbanks, taking a 25% exclusion off for certain types of
passengers you can't collect on, they expect a total collection of
$340.0. As Mr. Simpson said, a portion of the passenger
entitlement funds would be lost, about $1.4 million. The net for
Anchorage would be $3.5 million. The growth of emplanements is
expected to increase that figure.
SENATOR PEARCE asked if there is any restriction under federal
regulation or law that these dollars have to be utilized in some
way that upgrades passenger facilities, as opposed to going out and
building a new cargo tarmac. MR. PARKAN deferred to Mr. Simpson to
answer that.
TAPE 99-02, SIDE B
Number 591
MR. PARKAN continued, saying that if Mr. Simpson can't answer
Senator Pearce's question, he would be happy to follow up on it.
MR. CLIFFORD ARGUE, Staff Vice President for Properties and
Facilities for Alaska Airlines testified next. He stated he serves
as Chair of the Anchorage/Fairbanks Airlines Airport Affairs
Committee which represents 25 airlines with operating agreements to
serve the two airports. His comments today reflect the position of
Alaska Airlines, Reeve, Delta, Mark West, Federal Express, United
and American. He expressed their support of the imposition and use
of PFCs at the current $3 level as an appropriate funding source
for airport projects which meet statutory and regulatory criteria
of safety, security, capacity, noise mitigation or enhancement of
competition. The terminal expansion project at Anchorage
International is one for which PFC funding makes sense. Most of
the airlines would support imposition of the PFC to help fund the
project, either through direct capital payments or to help offset
debt service of $179 million in revenue bonds already issued, plus
the forthcoming additional $25 million in revenue bonds to be
issued soon. He stated that there are other worthy projects for
consideration of PFC funding at Fairbanks and Anchorage to reduce
the overall impact on airline rates, fees and charges, including
planned airfield ramp and terminal work. MR. ARGUE stated that
some 300 airports all over the country with PFCs in place will
collect a total estimated $23 billion over the next 20-25 years.
Anchorage and Fairbanks are among the only airports of their size
not collecting PFCs. There is no hard evidence of any difference
in air traffic demand by adding the PFC to ticket cost.
Number 545
MR. BUTCH HALLFORD, Vice President of Northern Air Cargo, Member of
Airport Affairs Committee, stated the arguments for and against the
PFC program continue to hold merit. Now the quarter billion dollar
terminal expansion adds a new element: the approval for the
expansion was predicated on the agreement of the signatory air
carriers serving Anchorage and Fairbanks to pay for it. Several
carriers supported the project based on written and verbal promises
from DOTPF that new and additional sources of income including PFCs
would be sought to pay for the terminal. They questioned if the PFC
program could, once achieved, still be applied to this project.
The DOTPF argued the commencement of the project was urgent, and a
delay would create a hardship on visitors to Alaska if they waited
until PFCs were approved. Mr. Hallford said he testified last year
that one-third of the cost of the terminal expansion would be borne
by the cargo carriers that operate to and through the Anchorage and
Fairbanks airports. He remains concerned that to impose even a
fraction of the $250 million dollar bill on cargo carriers could
potentially damage Alaska's ability to compete in the global
market. He stated his rural customers will have to pay a portion of
the cost of the Anchorage terminal in every loaf of bread and
gallon of milk they buy, whether or not they fly through the
Anchorage terminal ever again. It is clear that the cost of a
project this size must be spread across a broad base of payers, but
should minimize the amount of cost borne by people who never use
the terminal. The people who use it should bear the greatest share.
Number 492
CHAIRMAN WARD asked Mr. Mort Plum if he can recall and explain the
concerns of the air cargo carriers last year regarding the
mechanics of the PFC program.
MR. MORT PLUM, Director, Anchorage International Airport, recalled
that several carriers voted for the airport expansion contingent on
the future application for PFCs, including Mr. Jensen with Reeve
Airways. The technical aspects of the vote did not have the PFC
contingent in it. He said he does not have a copy of the vote.
REPRESENTATIVE COWDERY stated the legislation last year was based
on the statements by DOTPF and Administration about pursuing the
PFC program. He asked if there have been cost overruns so far.
MR. PLUM replied not to his knowledge. REPRESENTATIVE COWDERY
asked how much has been spent on administration, design,
engineering and other non-construction expenses to date. MR. PLUM
replied he does not have that information with him, but a monthly
report is provided to the Legislature and he will get that material
to Representative Cowdery after the meeting.
REPRESENTATIVE COWDERY asked if the project scope remains the same
as the project presented last year. MR. PLUM replied that a
committee will soon evaluate some of the terminal proportions. The
Commissioner has not eliminated any part of the project at this
time.
CHAIRMAN WARD asked if the baggage area was eliminated. MR. PLUM
replied the baggage area was not part of the original project which
included only those components within the new terminal.
REPRESENTATIVE COWDERY asked if the proposed covered walkway
between the domestic and international terminals is still in
planning to be built. MR. PLUM said that the north terminal
connector is being scrutinized closely and would cost around $1.7
million. It was part of the original project as presented to the
Legislature and the airlines.
Number 416
SENATOR HALFORD said it appears that virtually all of Southeast
would be exempt except for Juneau, Ketchikan and Gustavus. All the
essential air service communities are exempt, leaving the Railbelt
and Valdez in-state locations to pay the new cost. The other cost
is just a reallocation because if there's an outside leg, the money
is being collected and already goes there. He suggested passing a
bill that only applies the fees to any flight that includes an
outside leg, to maximize capture of fees from outside.
SENATOR WARD asked Mr. Parkan for a copy of the department's
proposal in 1996 and Senator Steven's proposal now, so the
committee can mix together the requests of the Administration.
MR. PARKAN responded he'll provide the original LB & A request
which in 1996 did not consider exemptions.
SENATOR HALFORD asked if the essential air service (EAS)
communities are already exempt under federal law. MR. PARKAN
replied that is true. The department looked at using EASs as a
basis for exemptions; these were established at a point in time
based on emplanements in a community. Nome or Kotzebue are not
designated EASs because they've grown considerably since the EAS
program was established.
MR. PARKAN explained the department looked at exempting intrastate
travel and only charging for those people going outside the state.
Hawaii tried to do the same thing and the FAA would not allow it.
He clarified that he meant the existing regulations of the PFC
program would not allow it, but legislative change would provide
that opportunity. However, he cautioned that putting gates at the
borders would "set off red flags" and draw other states' attention
to Alaska.
SENATOR PEARCE asked if 'essential air service' communities is a
federal designation for any community without a road. MR. PARKAN
replied it is, it's based on emplanements, and it's been in
existence for several years.
REPRESENTATIVE SANDERS asked why the original proposal for the PFC
program didn't include exemptions and now it does. MR. PARKAN said
the department thought it could get approval more easily, but
instead, generated a lot of concern and opposition. Later DOTPF
felt it could get approval with the inclusion of exemptions.
Number 339
REPRESENTATIVE HALCRO asked Mr. Hallford if he's concerned that if
the PFCs are not collected by the airport, the cargo companies will
be forced to bear a heavier burden of the bonded indebtedness. MR.
HALLFORD replied yes, that is true.
Number 328
MR. DAVID JENSEN, Vice President of Reeve Aleutians Airways, stated
he supports Gateway 2000 and the Anchorage Terminal expansion.
Twenty-two of the 25 signatory airlines voted by ballot on the
expansion, with 12 voting disapproval. A simple majority did not
approve the project, but according to the agreement a 2/3 vote is
required for disapproval. MR. JENSEN said he voted on behalf of
Reeve to disapprove the project, but he noted on his ballot that
with PFCs included in the funding stream for bonds redemption that
Reeve would change its position and approve the expansion. He was
led to believe by DOTPF that PFCs would be part of the 1999
funding. Based on his belief, Reeve joined the Airline Transport
Association in supporting the expansion. He urged the state to
propose a PFC for the Anchorage terminal expansion.
Number 268
SENATOR PEARCE asked how many of the communities Reeve Aleutians
Airways serves are exempt. MR. JENSEN replied that none are
exempt. They collect PFCs for out of state airports with a PFC in
place when they write a ticket in Cold Bay, for example. In
further discussion with Senator Pearce, MR. JENSEN said he does not
agree with having any exemptions at all.
Number 230
REPRESENTATIVE HALCRO asked if SB 82 passes into law, exempting PFC
collection for populations less than 10,000 that are not connected
with the national highway system, what percentage of Mr. Jensen's
customers would it affect? MR. JENSEN replied none.
SENATOR HALFORD asked for clarification of exemptions, and if Sand
Point is an essential air service destination. MR. JENSEN answered
it is not, and there is no PFC at Sand Point.
MR. PARKAN explained that the first emplanement means an airport
that collects or charges PFCs. The department doesn't envision
Sand Point to be a PFC collecting airport. He further clarified
that it works on the outbound flight. In other states, you pay the
fee to leave the airport having the PFC, but not to arrive at it.
The sponsor, the State of Alaska, as the owner and operator of most
airports can select them for PFC collection. Only the international
airports are under consideration at this time. It could be
broadened to collection at all rural airports but there is marginal
value because of the administrative cost.
SENATOR HALFORD stated virtually every outside trip has two stops
in Alaska. If the state system collected on the first emplanement,
it would be taking money from Seattle. MR. PARKAN said that is
true. PFCs at all the state airports would clearly draw more
revenue into the state. SENATOR HALFORD suggested applying the
charge to all state airports but only if there were an outside leg.
MR. PARKAN reiterated that putting the gate at the border is a
problem with the existing PFC regulations. CHAIRMAN WARD
interjected that he would ask Mr. Simpson about it.
SENATOR PEARCE suggested trying to exempt any flight without at
least two legs; so if you fly from Kenai to Anchorage, you don't
pay the charge, but if you fly Kenai-Anchorage-Fairbanks and change
planes in Anchorage, you pay the charge. It would minimize the
complaints from folks on the Kenai who don't want to pay every time
they fly to Anchorage, less than 75 miles away.
MR. PARKAN responded they looked at ways to consider the Kenai
situation, and were unable to find anything to satisfy the
regulations. The one percent rule applies: any class of carrier
that has less than 1% of total emplanements out of an airport can
be considered for an exemption. He had a list of the EAS airports
in the state and offered to make copies for the committee. In
answer to CHAIRMAN WARD, he said he doesn't think Congress needs to
reauthorize the EAS, but they need to provide the funding for the
appropriation.
REPRESENTATIVE COWDERY asked if it's possible to group the smaller
airports to get the PFC revenue pooled, and apply it to a
particular airport. MR. PARKAN replied that as the sponsor, the
state could apply the use of those PFCs to any airports it owns and
operates. A pool wouldn't be necessary.
REPRESENTATIVE HALCRO referred to a table of 1992 emplanement
figures, and said that if the PFC was charged at all airports, it
would total $7.6 million, significantly more than the $5 million
being considered now. He asked if Senator Halford's suggestion of
a PFC at all airports has been considered.
MR. PARKAN said it was considered, but the DOTPF thought it would
be best to start with the international airports and assess their
success, then do the certificated rural airports later. A threshold
above which it pays to collect is 10,000 emplanements, so looking
at the 1992 list, the charge wouldn't be collected for many of
them. It has to be a community above 2,500 to qualify.
MR. PAUL LANDIS, Vice President of ERA Aviation, member of
Anchorage International Airport Affairs Committee, said ERA has
stated opposition to PFCs on a number of inequities to its
passengers and the company in general. Kenai is ERA's largest
passenger market and highly price sensitive, with ERA the only air
carrier. The new and improved road has cut driving time to
Anchorage by about an hour. The full walk-up fare between Kenai
and Anchorage is $55 and includes an 8% transportation tax. The
tax would be 7.5% except that Kenai is within 75 miles of Anchorage
International. ERA also collects an additional federal tax, a $2
segment fee from each passenger, increasing the fare to $57.
Adding a $3 PFC onto the passenger fee would mean about 15% of each
full fare is pure tax. The PFC alone would be 5% of the Kenai-
Anchorage fare, whereas on longer flights, it's about 1%. Among
regional air carriers in Anchorage, ERA would carry a
disproportionate share of the load in collecting PFCs.
TAPE 99-03, SIDE A
Number 000
MR. LANDIS continued. The two-tiered pricing structure and the
common market means passengers riding on large aircraft will pay
more than those riding on small aircraft, making it impossible to
collect PFCs in advance. The 20 passenger seat exemption places an
insurmountable burden on ERA Aviation.
MR. LANDIS explained a situation in Cordova, a market served by
both ERA Aviation as a subcontractor to Alaska Airlines, and by
Alaska Airlines' jets. According to FAR 158.9(a), Alaska Airlines
cannot collect the PFC because it collects the EAS subsidy for
Cordova. ERA does not share the EAS subsidy and therefore must
collect PFCs, which puts ERA at an immediate price disadvantage,
and in a common market with its partner, Alaska Airlines.
MR. LANDIS explained his fifth point surrounds the question of
whether or not the current push for PFCs is an attempt to mask the
known cost overruns on the terminal expansion project, which is a
Band-Aid approach. ERA withdrew its initial objections to the
terminal expansion and has not changed that position, however as
the second largest carrier of passengers to and from the Anchorage
International Airport, it desires to seek other solutions before
the burden is disproportionately shifted to airline passengers.
Approximately 75 percent of ERA passenger traffic is local in
nature, meaning those passengers only travel on ERA flights. Those
passengers do not necessarily need the expanded terminal project,
but will be forced to carry a disproportionate share of the load if
PFC legislation is enacted. All regional carriers should be
required to collect local PFCs or all should be excluded from
collecting them: ERA Aviation clearly prefers the latter approach.
One alternative approach would require regional airlines to collect
PFCs in Anchorage, but only in conjunction with the "down line"
ticket from, for example, a passenger traveling from Kenai to
Anchorage and beyond.
Number 066
REPRESENTATIVE COWDERY asked Mr. Landis if he thought the $3 fee,
or an amount equal to five percent of the ticket cost, would stop
people from flying.
MR. LANDIS replied the number of emplanements in the Kenai market
has been decreasing over the past few years, one cause being the
change adding the $2 segment fee. He suspected the additional $3
PFC would further reduce ERA's traffic.
Number 080
REPRESENTATIVE HALCRO described a scenario in which at one of ERA's
sites, the location and time of day dictates the use of a smaller
aircraft, and the passengers purchase tickets for that flight. The
flight is then canceled due to weather conditions, and a larger
aircraft is later used to accommodate the stranded passengers. He
asked who will pay the PFCs for the passengers who bought tickets
for the previous, smaller flight.
MR. LANDIS answered with ERA's situation and the 20-seat exemption,
ERA would have to position an employee next to the airplane
collecting or returning $3 to each passenger, a system that would
be unworkable.
Number 114
CHAIRMAN WARD asked Mr. Simpson if all of Southeast is exempted,
with the exception of Juneau and Ketchikan.
MR. SIMPSON replied Juneau and Ketchikan have approved PFC
programs. The exemptions in Southeast are specific to Juneau's
applications; Ketchikan's application contained no PFC exemptions.
He clarified the EAS exemption pertains to the subsidized carrier
that flies in and out of the EAS location; Alaska Airlines does not
collect for a particular location.
Number 139
REPRESENTATIVE HALCRO asked, given the Cordova example where one
carrier is exempt from collecting PFCs and the other is not,
whether Mr. Simpson knew of an administrative way to waive these
communities from the collection of PFCs.
MR. SIMPSON replied the particular provision within that existing
regulation is specific regarding the EAS. Using Juneau as an
example, the FAA would be willing to consider and work with DOTPF
and Anchorage International Airport to structure exemptions that
are necessary for the particular airport or the communities served.
MARCO PIGNALBERI, staff to Representative Cowdery, referred to
Senator Halford's question regarding whether the FAA could or would
approve a system by which PFCs would be charged only for the
interstate routes, and asked if the FCC could live with such a
regime.
MR. SIMPSON stated the FAA headquarters' response to that question
was that exempting PFCs within Alaska was specifically precluded by
the FAA PFC regulations.
MR. PIGNALBERI stated that during a negotiation process, a
regulation might be amended based on the fact that Alaska is a non-
contiguous state with a predominant number of communities outside
of a road system. He asked whether ERA and Alaska Airlines would
both be exempt from paying the PFC for Cordova; and specifically
whether the exemption is based on the airline or community, or
both.
MR. SIMPSON said his list indicates that Alaska Airlines is the
subsidized carrier for the Cordova market, therefore Alaska
Airlines is exempt. Any other carrier that serves that market is
subject to PFCs.
REPRESENTATIVE COWDERY asked Mr. Simpson whether Kenai has
considered applying for an exemption.
MR. SIMPSON said Kenai has not applied to date, and no direct
discussion regarding an application with Kenai has taken place. He
recalled, during public hearings in 1996 in Kenai, the Kenai mayor
expressed an interest in implementing PFCs for Kenai, but no
further discussion has taken place.
Number 214
CHAIRMAN WARD asked Mort Plum to start preparing for the Senate
Transportation Committee update on the noise study for the
Anchorage International Airport. He thanked all participants and
adjourned the meeting at 3:20 p.m.
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