Legislature(2001 - 2002)
02/26/2002 01:37 PM Senate TRA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION COMMITTEE
February 26, 2002
1:37 p.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Gary Wilken
Senator Kim Elton
MEMBERS ABSENT
Senator Jerry Ward, Vice Chair
Senator Robin Taylor
COMMITTEE CALENDAR
SENATE BILL NO. 269
"An Act naming bridge number 1121, across the Knik River, the
Sergeant James Bondsteel Bridge of Honor; and providing for an
effective date."
MOVED SB 269 OUT OF COMMITTEE
SENATE BILL NO. 271
"An Act establishing the Alaska Marine and Rail Transportation
Authority; establishing the marine and rail transportation fund;
relating to ferries and ferry terminals; relating to the Alaska
Railroad Corporation; and providing for an effective date."
HEARD AND HELD
SENATE JOINT RESOLUTION NO. 32
Proposing amendments to the Constitution of the State of Alaska
relating to a marine and rail transportation fund.
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 269 - No previous action to record.
SB 271 - No previous action to record.
SJR 32 - No previous action to record.
WITNESS REGISTER
Ms. Carol Carroll
Department of Military and Veterans Affairs
PO Box 5800
Ft Richardson, AK 99505-0800
POSITION STATEMENT: Supported SB 269 and, as the representative
of the Department of Natural Resources, opposed SB 271
Mr. Bill O'Leary
Vice President
Alaska Railroad Corporation
PO Box 107500
Anchorage, AK 99510-7500
POSITION STATEMENT: Opposed to SB 271
Mr. Bob Doll
Regional Director, Southeast Region
Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Took no position on SB 271
Captain George Capacci
General Manager, Marine Highway System
Department of Transportation &
Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
POSITION STATEMENT: Answered questions pertaining to SB 271
Mr. Herb McDonald
Karloff Transportation
No address provided
POSITION STATEMENT: Opposed SB 271
ACTION NARRATIVE
TAPE 02-9, SIDE A
Number 001
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 1:37 p.m. Senators Wilken, Elton and Cowdery
were present. The committee took up SB 269.
SB 269-NAMING BONDSTEEL BRIDGE OF HONOR
MR. LADDIE SHAW, State Director for Veterans Affairs, Department
of Military and Veterans Affairs, asked members to support SB
269. The legislation honors an Alaska Medal of Honor recipient,
James Bondsteel, who died on that bridge. He said that to honor a
veteran in any way is appreciated, but for someone of Mr.
Bondsteel's stature, the honor is without question.
With no further questions or discussion, SENATOR WARD moved SB
269 from committee with individual recommendations.
CHAIRMAN COWDERY announced that with no opposition, SB 269 would
move to its next committee of referral. He then informed members
the committee would take up SB 271.
SB 271-MARINE AND RAIL TRANSPORTATION AUTHORITY
SENATOR WARD, sponsor of SB 271, first asked Chairman Cowdery if
the committee has received the requested warrants from the Alaska
Railroad Corporation (ARRC).
CHAIRMAN COWDERY said ARRC has promised him that the warrants
will be forthcoming and should be delivered in about one week.
SENATOR WARD expressed concern that the warrants are a very
important part of the discussion about SB 271. He then made the
following comments about SB 271.
The concept of an authority is not new, but in this time of
streamlining and consolidating, an authority makes sense. SB 271
will create a transportation authority with two divisions: one
for the ARRC and the other for the Alaska Marine Highway System
(AMHS). When the state purchased the railroad from the federal
government, part of the discussion was that the state would allow
the real estate holdings to be transferred with it instead of
separating them out and the land would be sold after five years.
The purpose of the delayed sale was to provide time to see how
the operation of the ARRC was going. That agreement has since
changed and he believes for the better. He believes ARRC is a
great state asset and that should be extended to Canada.
SENATOR WARD said he introduced SB 271 to provide a land base for
the AMHS. Funding for the AMHS has been left to the will of a
majority of legislators and the governor; the AMHS has been
subject to appropriations. He noted that spoke to his
constituents about the AMHS and found that funding for the AMHS
will not get much support from his area because his constituents
do not use it. He believes creating a transportation authority
for the two entities and granting it an additional land base will
be a good first step. He noted SB 271 was modeled after the
Washington State authority, which has a land base. He crafted the
legislation to enable the authority to grow and eventually add
dividends back to the state in the form of new transportation
projects. Had a land base been given to the AMHS when the ARRC
was purchased, he probably would not be introducing this bill. He
feels SB 271 provides a long-term solution to funding the AMHS.
SENATOR WARD cautioned, as the Chair of the Senate Finance
subcommittee on the Department of Transportation and Public
Facilities, the state will be faced with choosing which types of
transportation should be funded and he does not believe the AMHS
and ARRC should be forced to compete against each other for
general fund dollars when they can be given land bases. He
estimated that Southeast Alaska contains around 500,000 acres of
state land. He would favor giving the new authority all or any of
that land to develop.
SENATOR WARD maintained that ARRC is working well because it has
a land base but the AMHS is not. He held that both transportation
entities fear this proposal because they fear losing authority
over their own enterprises. He said the parties involved must set
aside inherent fears over jurisdiction to come up with a workable
plan. He then offered to answer questions.
1:45 p.m.
CHAIRMAN COWDERY recognized the presence of Senators Taylor and
Ward. He then informed members that he did not support the
purchase of the railroad years ago, and did not vote for it. He
asked, for the record, how much land the AMHS owns at this time.
SENATOR WARD said it owns none.
SENATOR ELTON commented that the approach laid out in SB 271
gives the legislature an opportunity to discuss other things,
such as how the AMHS is funded. He thanked Senator Ward for that
opportunity. He stated that unlike a land-based highway system,
50 percent of the AMHS funds come from users. A few years ago, an
idea similar to SB 271 was proposed. At that time he was told
that to build a rural two-lane road in the Kenai Peninsula would
cost $1.3 million. Maintenance costs would be $6,400 per year per
mile for one lane. None of that money comes from the users, it
comes from the general fund. He said the possibilities for
transportation funding are intriguing. He suggested establishing
a land base for the highway system and providing DOTPF with a
corridor along the highway to leverage so that DOTPF could
hopefully do as well on earnings as ARRC has done.
SENATOR ELTON said one of the good notions behind this approach
is the acknowledgement that the state needs to invest in its
transportation systems. He said he is skeptical that an authority
of this type will solve the problem as quickly as necessary. He
indicated that if SB 271 passes, no benefits would be seen for
five years.
SENATOR ELTON then asked several questions, the first being
whether the transportation authority would fall under the
Executive Budget Act or whether it would assume the position of
ARRC, outside of the Executive Budget Act.
SENATOR WARD replied that it would fall under the Executive
Budget Act. He maintained that Senator Elton hit on the problem,
that being that the legislature and governor, if they wanted to
develop some of the land along the roadway system to produce
income to pay for transportation needs, could have done so but
has not. A transportation authority, whose sole purpose is
transportation, would develop that land before laying people off
or stopping runs between towns. He said as the previous chairman
of the Senate Transportation Committee, he heard from the port
authority at Bellingham and others about their function and
mission and land-based revenue systems. He said he agrees with
Senator Elton about the cost of roads on the Kenai Peninsula but
he sees this as a political problem. He noted that at a town
meeting in Nikiski, and learned that if it comes down to a choice
of fully funding a school in that district or funding the AMHS,
the AMHS will be in trouble. He said he is trying to avoid that
scenario.
SENATOR WARD said Alaska needs a statewide transportation plan of
which a transportation authority would be a cornerstone. He
indicated that he does not disagree with anything Senator Elton
said about the AMHS, but the majority of Alaskans do not share
the same view. He repeated that legislators need to take the
funding argument off of the table and let a transportation
authority deal with it.
SENATOR ELTON said his second question pertains to the two fiscal
notes that add up to $7 or $8 million per year. He asked Senator
Ward how much revenue from the land base is projected.
SENATOR TAYLOR referred to the second page of the ARRC fiscal
note and read, "No revenue is assumed to be received from the
lands to be transferred during the time of the fiscal note (FY
03-08). He said it does not shock him that the state could give
to this authority 500,000 acres and the authority would not be
able to make a dime off of it for five years.
SENATOR WARD added that when he spoke to people in Washington
about its authority, he could tell that every time the authority
leased or sold land, it was completely focused on transportation
needs. This half million acres is in existence today but is not
helping the transportation needs of Alaska. He believes an
authority will figure out a way to develop it. Otherwise, Alaska
will run into very large transportation problems.
SENATOR ELTON asserted that one of the charges for 20 senators is
to have a statewide outlook because most citizens would rather
fund their local school than a transportation project in another
region. He said that requesting funds for the AMHS from the
legislature is no different than requesting funds for the rest of
the highway system, the exception being that users pay 50 percent
of the cost of the AMHS while the users of the highway system pay
nothing.
CHAIRMAN COWDERY maintained that the trucking industry pays a
fair share through fuel taxes. He then noted that Senator Elton's
comparison of building costs of a two land road in Kenai with the
AMHS is inaccurate because the AMHS does not have the same
environmental requirements and restrictions.
SENATOR ELTON said that is true but the cost of a fast ferry
would purchase a rural road system in the Kenai Peninsula.
However, the road system would cost $204,000 per year to
maintain, which is much more than it will cost to maintain the
ferry.
CHAIRMAN COWDERY maintained that at the last meeting, he asked
DOTPF officials how many roads they had built. They had not built
any so he does not know how they could be so certain of the cost.
SENATOR WARD responded:
The Marine Highway System's maintenance is absolutely
being put at the back of the column. The ships and the
people that work there - because they have contacted me
- they feel like as if they're treated like a
stepchild. All I'm trying to do is give them a land
base so they don't have to be - eventually we'll end up
just rusting a hole in these things and it's going to
fall apart. We're talking hundreds of millions of
dollars to replace it. We have to start just simple
maintenance and we're talking about just enough money
to keep them afloat let alone fixing it. We have to
refocus this and if somebody's got a better plan than
this, please bring it forward.
SENATOR ELTON agreed the AMHS has been treated like a stepchild.
SENATOR TAYLOR commented that he passed a bill that provided
250,000 acres over a 10-year period to be selected for the
University of Alaska. This Administration vetoed that bill so a
case is on its way to the Supreme Court. He stated he would love
to see Alaska's 103 million acres of land finally provide some
kind of economic base for schools and job opportunities. He
questioned how Senator Ward intends to get this legislation
passed if the Governor would not support a prior effort. He
maintained that this Administration has not requested an increase
in the AMHS budget for eight years except for a shortfall for the
Kennecott. In addition, this Administration destroyed the AMHS
trust fund because instead of asking for funds when they were
needed, it [used the trust fund].
CHAIRMAN COWDERY then took public testimony.
MR. BILL O'LEARY, Vice President of Finance for ARRC, said he
would provide a short background of ARRC and then discuss the
ARRC's position on the bill in light of its history and
structure.
The federally-owned railroad was transferred to the
state 17 years ago, creating the Alaska Railroad
Corporation. When legislators crafted the Alaska
Railroad Corporation Act, they produced a well thought
out document that positioned the new entity to thrive
without operating subsidy from the state.
The Federal Transfer Act, an enabling state statute,
provided the railroad with many tools to face the
mandated challenges of being a self-sustaining economic
driver for Alaska. Some of these tools included -
similar to the Lower 48 railroads - significant land
holdings were transferred to the corporation. The
corporation was granted tax-exempt status.
The railroad was separated from the state budget and
appropriation process so it could rapidly react to
market demands. The corporation was also given legal
tools to protect both itself and the state from
liability. The railroad has used these tools to be
successful in meeting its mission, a mission that
requires it to act like a private business in many
respects but with a responsibility to the public as it
goes forward to promote economic development for the
state. To accomplish this difficult mission, the
railroad has required no state operating subsidy but
rather has operated profitably for the vast majority of
the last 17 years. In fact we are projecting a $4.2
million net earning figure for our fiscal 2002. Each
year these earnings have been reinvested into the
corporation's infrastructure in an effort to address
the significant deferred maintenance problem the
corporation inherited from its federal ownership days.
Let me be very clear about one thing - there are no
surpluses at the Alaska Railroad. Every dollar earned
is plowed back into the company and it is still not
enough to meet the needs of a massive plant
infrastructure that is required to run a railroad 24
hours a day, 7 days a week in the state of Alaska.
Indeed the railroad's limited ability to generate
sufficient internal capital funds has only recently
been assisted by its eligibility for federal funding
for certain of the corporation's capital needs.
So what has been the primary component of our earnings
over these years? The corporation has historically
relied upon its real estate activities for the majority
of its earnings. For 2001, virtually all of the
company's net earnings will be a result of real estate.
Since transfer, real estate has played a key role for
the corporation. Similar to the Lower 48 experience,
Alaskan towns have grown up around the Railbelt. As
these towns grew, rail land became more and more
valuable. The railroad has capitalized on this
phenomenon, leasing approximately 2500 acres of rail
land currently and generating significant income from
it.
In our opinion, this legislation would jeopardize all
of this and further unravels the intent of the
architects of the original Alaska Railroad Corporation
Act. Although this bill proposes an innovative funding
mechanism for the Marine Highway System, the Alaska
Railroad Corporation cannot support SB 271. Simply put,
we do not believe this bill and its companion
constitutional amendment are financially workable.
As you know this bill creates an authority combining
Marine Highways and the Railroad Corporation and
permitting the authority to select 500,000 acres of
certain state lands, presumably to be developed to
provide sufficient income to bridge Marine Highways
funding gap. Our initial analysis of the bill and its
financial impacts clearly indicates that it would spell
disaster for the Railroad Corporation and the Alaskan
companies and residents it serves.
Specific concerns we have with the bill include the
following. First off, the legislation would make the
Railroad Corporation's internal capital funding
virtually non-existent. The bill requires all rail land
not used for operations to be transferred to the
authority. Without the revenue from its real estate,
the deferred maintenance problem that we faced at
transfer and have faced since then will manifest itself
again quickly within a few years. Further, without
internal funds to be used for required match money,
federal funding will be jeopardized. In terms of
industry standards, a railroad the size of the Alaska
Railroad requires anywhere from $15 to $20 million per
year annually to be invested into its rail line.
Without real estate earnings, this will be an
impossibility for the railroad.
CHAIRMAN COWDERY asked how much income is derived from the land
each year and the amount of federal dollars needed for the
railroad's operations per year.
MR. O'LEARY said ARRC's gross real estate income for 2001 was
approximately $10.5 million. He projected about $60 million of
federal funds for FY 2002 will be used entirely for capital
projects. No federal funds are used for operating costs.
MR. LEARY then continued his overview.
The second point is this bill does not follow the
successful model of the railroad. Railroad Corporation
rail land is valuable due to its location and proximity
to the tracks and the major cities that grew up around
the tracks. Simply dedicating 500,000 acres of
undeveloped land does not fit the successful model of
the Railroad Corporation and its land development.
There could be significant costs to bring this land to
a state where it could be revenue producing. The timing
of when this could occur may also be problematic.
The next point is that significant administrative and
management cost increases would be a reality in our
opinion. The bill appears to envision three divisions
within the authority: Marine Highways, the Railroad and
an authority system office. The cost of the system
office appears to be incremental cost. Along the same
lines, we believe there would be very limited
administrative efficiencies to be gained through
consolidation - different locations, different benefit
systems, different infrastructures, and different
constituencies will not permit realization of such
efficiencies in our opinion.
Next point is that placing the railroad under the
Executive Budget Act would greatly inhibit the railroad
from fulfilling its mission. The railroad's budget
could become politicized under the Executive Budget
Act. This, along with a loss in flexibility to react
to market demands, could have a chilling effect on
business confidence and the railroad's ability to
deliver reliable service.
The bill, in our opinion, does not solve Marine
Highway's problems. Transferring 500,000 acres of non-
specific state land over a multiple year period will
not address the fiscal problems faced by the Marine
Highway System in our opinion. Depending on where this
land is, millions of dollars may be required to
transfer it and prepare it for any revenue generating
use. That again may be years away.
As shown in the fiscal note submitted, we estimate the
initial cost of implementing this bill at an increment
of $5.3 million for the first year from the state's
general fund exclusive of what subsidy may be required
by Marine Highways.
In summary, we believe this bill will not streamline
government, nor reduce costs, nor wean Marine Highways
off the general fund. It would rather create another
layer of management, institute numerous costly
administrative burdens, put a structure in place that
would inhibit prompt reactivity to market changes and
would have the bottom line impact of making two
agencies dependent upon the state rather than one. We
believe this is certainly not in the best interests of
the railroad, its customers, nor the residents of the
state of Alaska. The legislature, and this
transportation committee in particular, is focused on
economic development through enhancing and expanding
the state's transportation network. We submit that this
bill is not the appropriate vehicle by which to further
this goal. Thank you again and for the opportunity to
testify and I stand ready to answer any questions the
committee may have at this point.
SENATOR WARD said once the committee receives the warrants from
ARRC, it can find out how much money there was and what it was
spent on, however, a new railroad would not be able to survive
without a land base. In the early 1980s, some argued that the
railroad land would never be worth anything and would take
forever to develop. He asked Mr. O'Leary why, if the concept of a
land base works for the railroad, it would not work for the AMHS.
MR. O'LEARY said the ARRC believes that the specific model that
has worked for the railroad has worked because of the specific
land, which is located around the rail line. Because it is around
the rail line, it became more valuable as the towns around the
rail line grew. ARRC has a number of acres of land that are
available for lease but cannot be leased because they are not in
an area being developed.
SENATOR WARD again asked why, if the concept of a land base for a
railroad is a good thing, that same concept would not be good for
the AMHS.
MR. O'LEARY said, again, it depends on the land base and the
costs of making that land revenue-producing. He repeated that
most of the railroad's land is easily accessible and, in some
ways, has grown up with the railroad.
SENATOR WARD concluded that the ARRC's problem with the bill is
the possibility that the land granted to the AMHS will not be as
good as the railroad's land.
MR. O'LEARY said ARRC has a number of concerns with the bill, one
being ARRC's involvement in this bill at all. The choice of land
transferred is also a concern.
SENATOR WARD indicated the railroad already has land that would
become part of the authority so seed land is already being
developed.
CHAIRMAN COWDERY asked if ARRC did site preparation when it
leased its land or whether those expenses were paid by the
lessees.
MR. O'LEARY said it is his understanding that the land has been
developed in a combination of ways. In certain situations ARRC
did the work and the cost was rolled into the lease rate, in
other situations, the lessee did the work.
CHAIRMAN COWDERY said he prefers the later.
SENATOR TAYLOR asked whether ARRC has made more money from its
land or the railroad operation over the last 18 years.
MR. O'LEARY replied it made more in gross income from real
operations but the net income came down to real estate.
SENATOR TAYLOR said that when he looked at the balance sheet
during the early years, the only thing ARRC made money on was
land operations, which were subsidizing the railroad.
TAPE 02-09, SIDE B
SENATOR TAYLOR said that anytime the state considered selling the
railroad, the responses it received said there isn't a railroad
company in the United States wealthy enough to stand the losses
long enough to buy it. He commented that he has reservations
about this bill but his are centered on whether it can ever be
enacted under this Legislature and Administration. He then asked
Mr. O'Leary what recommendations ARRC can offer to expand the
railroad south and to the McGrath area. He asked if giving ARRC
alternate sections of land on either side of the right-of-way
would be attractive to ARRC.
MR. O'LEARY said a strong Alaskan economy equates to profitable
times for the railroad and that a lot of projects might occur
that could change the face of the railroad, for example the gas
line and extension to Canada. ARRC is supportive of anything that
allows it to continue to be self-supporting. He offered to get
back to the committee with more ideas.
SENATOR WILKEN asked if he has been invited by the Legislature to
give a status report on the railroad this year.
MR. O'LEARY said he believes Mr. Gamble has given an overview to
the House Finance Committee and is scheduled to give one to the
Senate Finance Committee.
SENATOR WILKEN asked what percent of ARRC's net earnings are
generated from its real estate holdings rather than the railroad.
MR. O'LEARY replied:
Senator Wilken, we're looking at between 101/2 and 11
million dollars worth of gross real estate income for
2002, with approximately between 3.5 and 4 million
dollars of related expense, related to the real estate
department, which is going to give us anywhere around 6
million dollars of net actually from our real estate
department in 2002.
SENATOR WILKEN asked if the total earnings in 2001 were $4.2
million.
MR. O'LEARY said ARRC is projecting $4.2 million in 2002.
SENATOR WILKEN said:
Let me just tell you why I ask the question. My first
year here we had a report to Finance and - I wasn't on
Finance, I sat in - and I believe that the real estate
versus the railroad operation was 90 real estate, 10
real estate. And then two years ago it was 52 percent
real estate and 48 percent railroad operations.
Obviously that's a big change so that's what I
wondered, if you're continuing to be a real estate
company or a railroad company and that's really what I
wanted to know. So I'd appreciate you getting back to
me sometime and let me know what those numbers - if
they're correct and, if they are, where they are today.
MR. O'LEARY said for 2001 and 2002, virtually all of ARRC's net
income will derive from real estate activities.
SENATOR WILKEN asked if ARRC is losing money on railroad
operations but making money on real estate.
MR. O'LEARY said ARRC is in the process of taking a very hard
look at its rail operations and trying to drive the operating
ratio down so that the rail operation side will be more
profitable. To this point, the rail operation side has been a
break-even operation or has generated a small surplus. The 45
percent that Senator Wilken referred to most likely relates to
2000, when through a large federal reimbursement related to
winter storms, ARRC had skewed net income figures. The average
net income over those years was about $6 million.
SENATOR WILKEN asked what the net worth of ARRC is.
MR. O'LEARY said the actual equity ARRC has is about $140
million, which is the cumulative earnings since transfer. ARRC
has $350 million worth of assets in its financial statements at
this time.
SENATOR WILKEN asked if the state sold everything and paid the
debts it would get $140 million.
MR. O'LEARY said ARRC has $140 million of retained earnings and
the state's investment of $32 million so the total would amount
to about $172 million.
SENATOR WILKEN asked if the amount of money provided to ARRC by
federal agencies would be jeopardized if ARRC and the AMHS are
combined.
MR. O'LEARY said he believes so because a large part of the
federal funding that ARRC receives comes with a 20 percent match
requirement that ARRC would need to generate internally. Without
its real estate income, ARRC would not be able to generate
sufficient earnings to provide that match money.
SENATOR WILKEN asked what information the committee is waiting on
from ARRC.
SENATOR WARD said he has requested copies of the checks written
by ARRC last year. He was told it would take awhile to get that
information together.
CHAIRMAN COWDERY added that ARRC had some legal issues it wants
to look at first.
SENATOR WARD said nothing in this bill would take away any
revenue from ARRC. An authority would oversee the operations. He
assumes that the people appointed to the authority would do
nothing to damage the ARRC any more than they would to damage the
AMHS. He believes they would make decisions in the best interest
of the state. He then asked whether hauling coal from Healy is
profitable.
MR. O'LEARY said he is not comfortable discussing that question
in this venue for proprietary reasons.
SENATOR WARD asked in what forum it would be appropriate to tell
the legislators whether the railroad they own is making a profit
from hauling that coal.
MR. O'LEARY said he would like to first speak to legal counsel to
make sure that no information is disclosed in a public forum that
would damage the railroad or one of its customers.
CHAIRMAN COWDERY offered that the information could be disclosed
during an executive session.
MR. O'LEARY agreed.
2:38 p.m.
SENATOR ELTON thanked Mr. O'Leary for his straightforward
testimony and then asked what percentage of the $10.5 million
gross income from real estate comes from ARRC's fiber optic
leases.
MR. O'LEARY said a large part.
SENATOR WILKEN said from being around Fairbanks, the railroad and
Healy coal, he would be shocked to find in executive session that
the railroad made a nickel off of hauling the coal. Suneel (ph)
drives a very hard bargain. It is his impression that the
railroad has ponied up on numerous occasions to lower its costs
to enable that mine to operate and ship half of its production to
Korea.
SENATOR WARD thanked Mr. O'Leary for his testimony and said he
understands the position ARRC is in. He believes ARRC has done an
excellent job and is an asset to the state. However, he believes
the AMHS is an equally good investment. He is trying to find a
way for the AMHS to sit at this table and talk about its real
estate holdings and ways to subside fares for citizens, like the
railroad may be subsidizing Koreans to buy our coal. He noted he
would like the elderly to ride free on the AMHS.
CHAIRMAN COWDERY asked about the transportation cost from Healy
to Seward versus Healy to Anchorage. He asked if his information
is correct that there is a large cost to split the trains to get
over the Turnagain Pass.
MR. O'LEARY said there are a myriad of things that go into the
cost structure of the railroad. ARRC looks at allocating fixed
costs across the entire line and by line of business. The south
end of the line from Anchorage to Seward does not have the
traffic that the Anchorage to Fairbanks line has. Allocating
costs can be done in a number of ways, he said, but certainly
there is significant cost in taking coal from Anchorage over the
pass. He does not know what the percentage split is.
CHAIRMAN COWDERY maintained that Alaska needs to be competitive
when marketing its resources. He said:
You know we are by tidewater that's closer to get to
Seward and it takes a long time to load the ships in
Seward and I was just wondering if we could improve and
make certain that this operation continues
competitively. I understand - what is it Hyundai or
somebody is shipping, they take care of the shipping
and you do your negotiation through them. Anyway,
[indisc.] with the Korean side of things.
SENATOR TAYLOR suggested dividing the issue so that instead of
granting 500,000 acres to a joint authority, the AMHS and ARRC
would each be given 250,000 acres. He asked Mr. O'Leary if his
testimony would be different if that were to happen and whether
the railroad could make money out of another 250,000 acres if it
was given to ARRC over the next 8 years.
MR. O'LEARY said the same questions apply regarding where the
land is, what the access is, and what costs will be incurred to
make it revenue producing but it is something the ARRC would take
a serious look at.
SENATOR TAYLOR said it wouldn't be taxed so ARRC could do what
the Knowles Administration does and let it just sit there. That's
the way ARRC has been developing its lands anyway - it waits for
someone to come along and ask to lease it. He stated that by
dividing the question, the ARRC couldn't lose.
SENATOR WILKEN commented there has been a lot of noise and
discussion around the Capitol lately about taking the money from
working families of Alaska to fund government. He asked Mr.
O'Leary what an appropriate franchise fee from the ARRC would be
to help the people of Alaska fund their government.
MR. O'LEARY said there are a number of ways to view this but at
this point, ARRC does not have enough to do what needs to be done
to keep the railroad. Maintaining the infrastructure is a
tremendous job. The federal money has been amazingly helpful but
ARRC still needs every dollar of its internally generated funds
to improve its operations. ARRC is continually striving to
improve its operating ratio and profitability from rail
operations so that it can generate more net income to plow back
into the rail line. He said his initial response is that the ARRC
cannot generate enough to take care of its own needs and hopes to
do that before the legislature looks at any sort of dividend.
SENATOR WILKEN asked how many passengers the railroad will carry
this year.
MR. O'LEARY answered around 480,000 to 500,000.
SENATOR WILKEN said if he could take $10 from every passenger to
keep his constituents from paying $500,000 in income taxes, he
would vote to tax those passengers. He advised Mr. O'Leary that
the ARRC board may want to discuss the need to step up and help
with the state's fiscal crisis because he believes that time is
coming.
MR. BOB DOLL, Director of the Southeast Region of the Department
of Transportation and Public Facilities (DOTPF), informed members
he is responsible for the Marine Highway System as well as roads
and airports in Southeast.
CHAIRMAN COWDERY asked if, given the opportunity to receive land
for the AMHS, he would welcome that idea.
MR. DOLL said that is a very generous offer that DOTPF would have
to seriously consider. He expressed skepticism, however, because
ARRC makes money from the land that is contiguous to, or
conveniently located to, the railroad, which it leases. It is not
making money from the sale of property. Therefore, if the AMHS
land is "over the mountain," he is not sure it will be
beneficial.
CHAIRMAN COWDERY asked if it would be beneficial if it is in the
right location.
SENATOR TAYLOR asked:
If you took your Marine Highway hat off for just a
minute and I offered you 500,000 acres of Alaska lands
that you could select, you'd worry about that and
wonder where it was and whether or not you could make
anything off of it or would you say I'll take it right
now and I'll begin my selection tomorrow and I'll be
making money off of it in six months?
MR. DOLL said that would be a likely reaction. However, he still
has the problem of what to do next year and the year after that.
SENATOR TAYLOR asked if he is saying 500,000 acres would not be
enough or that he would sell all of it in one year.
MR. DOLL said he believes identifying, assessing, and valuing it
would be a process that is not likely to produce any real revenue
for a considerable period of time.
SENATOR TAYLOR replied:
I wouldn't want to give it to you. I'd want to give it
to somebody that would figure out how to develop it and
make money off of it for a long, long time. In fact
that's how we solved the Mental Health Trust problems
because we gave them back their lands and they are
generating significant income off of that land right
now.
MR. DOLL said if that is a good model, the AMHS would hope to
emulate it.
SENATOR TAYLOR said he would be shocked if the AMHS is opposed to
having any additional asset base to help meet ongoing expenses.
CHAIRMAN COWDERY said that regarding selection of the land, small
islands are in high demand for sale or lease. He said he agrees
that giving the AMHS land in Tok Junction wouldn't be the most
desirable but land in Southeast would.
MR. DOLL said he is apprehensive that the designation of the land
and the donation of it to the AMHS is anticipated to be the
solution to a problem. He is not sure that it is but he is
willing to consider it. He added if it doesn't rapidly produce
revenue, it is not a solution.
CHAIRMAN COWDERY asked what "rapid" would be.
MR. DOLL replied two or three years would certainly be rapid.
SENATOR WARD asked if the AMHS is facing deferred maintenance
costs and, if so, what the costs are.
MR. DOLL said there is deferred maintenance and asked Capt.
Capacci for an exact figure.
CAPTAIN GEORGE CAPACCI, General Manager of the AMHS, said he does
not have an exact figure for deferred maintenance projects but
all ships have a certificate of inspection, Coast Guard
inspections and American shipping inspections. He said a few
years ago the amount of deferred maintenance was in the tens of
millions of dollars.
SENATOR WARD remarked that if the AMHS meets all standards, no
big projects need to be done right now.
CAPTAIN CAPACCI said that is correct.
MR. DOLL pointed out the legislature has been appropriating
around $4.5 to $5 million every year for state-paid maintenance
and for overhauls on the ships to bring the ships up to the
condition Captain Capacci described.
SENATOR WARD asked what short term options the Administration has
in mind to fund the AMHS in light of the lack of money in the
marine highway fund.
MR. DOLL thanked Senator Ward for his concern about funding for
the AMHS and for the thought that has gone into SB 271, but he
said there are three aspects to what the Administration has in
mind. The first has to do with the addition of shuttle ferries to
the system, which will be less expensive to operate and which
will address the problem of obsolescence of some of the
mainliners. The second is a continuing examination of tariffs and
an increase in revenue every two years. The third is to come to
grips with the fact that some of the ships are now 40 years old.
Whether they represent a worthwhile capital investment in the
long term is a difficult question that will have to be faced. If
the conclusion is that the costs of meeting their increasing
regulatory requirements is not worthwhile, taking them out of
service will save money.
SENATOR WARD asked what will happen to the ferry schedule if the
40-year old ships are deemed too old to fix.
MR. DOLL said the system was originally designed to bring people
in and out of Alaska and that design also provides transportation
within Alaska. It does not do either job perfectly. The AMHS
would like to improve the intrastate transportation system with a
shuttle system and provide less of the interstate function. A
good deal of the interstate function can be met with another
shuttle system. He believes that by providing better
transportation to people within the state at a lower cost, the
long haul requirements can be met as well.
SENATOR WARD asked Mr. Doll if he plans to raise fees every two
years.
MR. DOLL said that is correct.
3:02 p.m.
SENATOR WARD expressed disapproval and said he prefers the AMHS
to use a land base to develop real estate instead of raising
fees. He said it isn't right to subsidize coal for Koreans while
charging his relatives more for travel. He stated he understands
the turf issues involved in creating an authority but he can't
justify raising fees. He said he is not opposed to splitting up
the land for ARRC and the AMHS and that it is high time everyone
has a discussion about what to do since the marine highway fund
is out of money.
SENATOR ELTON asked if the transfer of land will include the
transfer of subsurface mineral rights and whether the authority
could select coal producing land.
SENATOR WARD said it is his intent that subsurface rights be
transferred to the authority.
SENATOR TAYLOR asked if the state has subsurface rights on state-
selected lands.
CHAIRMAN COWDERY was not sure.
SENATOR TAYLOR said the state is not allowed to convey those
rights under the Statehood Act.
MS. CAROL CARROLL, Department of Natural Resources (DNR), said
that is correct.
SENATOR ELTON said they can be transferred to another state
agency.
SENATOR WARD said this authority is such an agency.
MR. DOLL stated that Senator Ward has raised some important
philosophical questions and that DOTPF needs to give serious
consideration to Senator Ward's question about how DOTPF should
respond to the needs of the AMHS's financial needs.
SENATOR TAYLOR stated:
We've done the modest increases for several years now
and we've modestly got ourselves up to the place where
you're not begging for somebody to market you
facilities so you can figure out how to get a rider
back on them. It's just what Southeast needs right now
for their economy - a couple more increases in ferry
fares. Do you have toll road authority? I mean don't we
charge a toll on Whittier? ...
MR. DOLL said he is not sure.
SENATOR TAYLOR said other states use them "like crazy."
MR. DOLL said he has never investigated the subject.
SENATOR TAYLOR said he co-sponsored a bill to get money for the
Whittier Tunnel-Bradfield Toll Road bill. The money was
appropriated based on the fact the Whittier road would be a toll
road and the bonds would be repaid with toll charges. He wondered
whether DOTPF has toll road authority because:
... if it does, I want a toll road put up on the Glen
Highway and everyone of those rascals driving in and
out of Wasilla and Palmer everyday going to work, they
can pay one nickel and I guarantee it will fund your
marine highway system forever, just off of that. And
the nice thing to make them really appreciate the
marine highway would be shut the blooming road down for
about a week at a time like you do with all of my towns
and we can let them all sit at home too [indisc.] then
we could all feel the same way and be treated equally
in this state. I don't know if you've got toll road
authority and if you're looking at using it any place
in the state.
MR. DOLL said he would be happy to research that question.
SENATOR TAYLOR asked Mr. Doll if DOTPF supports or opposes SB 271
and asked where the fiscal note is.
MR. DOLL said he has not discussed the subject beyond the
Southeast region so he does not know what the department's
position will be. He thought the Commissioner is on record as
having said if a financing mechanism can be found, he would be
happy to endorse it.
SENATOR TAYLOR said he thought that was the quintessential
question of why Mr. Doll is here: whether DOTPF supports or
opposes the bill.
SENATOR ELTON said he is hearing one entity say no and the other
say maybe.
MR. DOLL said he did not come prepared to testify so he cannot
answer the Senator's question but he will get an answer for the
committee.
SENATOR TAYLOR asked if the committee failed to give DOTPF
notification a week ago of this hearing.
CHAIRMAN COWDERY said DOTPF had notice.
SENATOR TAYLOR asked whether DOTPF submitted a fiscal note.
CHAIRMAN COWDERY said it did not. He then announced that he would
hold the bill in committee until he has more information from the
railroad.
MS. CAROL CARROLL, Department of Natural Resources (DNR),
informed members that DNR has before the Finance Committee
various revenue generating proposals. Those proposals might cost
a little money but they use state lands.
CHAIRMAN COWDERY asked Ms. Carroll to provide in writing a list
of all state owned islands with high commercial value in
Southeast Alaska.
MS. CARROLL said she can provide information on the amount of
state land in Southeast and whether that land is located on
islands.
SENATOR ELTON said DNR has that information because it went
through that exercise with the University lands trust bill.
SENATOR WARD said he requested from DNR a description of state
land in Southeast and through the Rail belt, including buildings.
He then asked about the total amount of state land in Southeast.
MS. CARROLL said she did not know and she does not know whether
500,000 acres of state land exists in Southeast.
TAPE 02-09, SIDE A
SENATOR TAYLOR said there is not; the federal government would
not allow the state to select much land in Southeast. He noted
that Native villages in Southeast only got one township (23,000
acres) while Native villages up North got four because of
previous commitments made by the federal government on the
Tongass and how much they would allow to be taken out of it.
MS. CARROLL informed members that DNR is most interested in
Section 25 of this bill - the section that transfers 500,000
acres to the authority. That transfer will be a very difficult
one. DNR will get into substantial controversy about which
acreage to transfer. The process will be arduous and will be
costly. The revenue generation from the undeveloped portions of
the selected land would not occur for years into the future. Land
that is already developed would have a lease sharing structure so
that if the land is leased prior to selection, the state gets to
retain the income. If it is leased after selection, that income
goes to the authorities. The authority could select oil and gas
properties as long as those properties are not on a five-year
sale schedule. The authority could get the subsurface rights on
the 500,000 acres.
SENATOR ELTON asked if intertidal lands could be selected.
MS. CARROLL said the bill does not say they cannot be selected.
She added that DNR opposes this legislation.
SENATOR TAYLOR asked if DNR opposes the bill or was told to
oppose it.
MS. CARROLL said DNR opposes SB 271.
SENATOR TAYLOR said he found the footnote on DNR's fiscal note to
be absolutely fascinating. That footnote says it can be assumed
that the Marine Rail Fund will select the most valuable parcels
it can find with the effect of diverting a significant revenue
stream out of the general fund where it would have been available
for those public purposes the legislature deemed most important.
He asked what the value of the significant revenue stream from
500,000 acres is under DOTPF's management today and how much DNR
believes will come out of the future revenue stream of the state
by diverting the 500,000 acres that DNR has done nothing with
during the last 30 years of management.
MS. CARROLL replied DNR does not know the amount because it does
not know what would be selected.
SENATOR TAYLOR said DNR could use the premise that the authority
will take the most valuable acreage.
MS. CARROLL said she could provide an example of what happened
under the University lands bill. The University wanted a parcel
close to Denali Park. The University thought that parcel could be
sold to the Park Service for a substantial amount of money. That
land was undeveloped but it was worth a lot.
SENATOR TAYLOR said that was in the Wolf Townships and that the
Governor was trying to find a way to protect the Toklat wolves
"for his buddy up there." In the process, he wanted to force the
University to take the land to sell to some "eco-group" who would
gift it to the National Park Service to expand the Denali Park
boundary north to make certain that no railroad ever came in from
the northern end of the park. He alleged that had nothing to do
with land value but instead had to do with politics on "the third
floor." He asked Ms. Carroll if DNR has a piece of land with
significant value in the marketplace that might be purchased
rather than a piece that will be purchased for political
purposes.
MS. CARROLL maintained that the piece of land he referred to was
valuable to some people.
SENATOR TAYLOR said it would be very valuable to people in
Kantishna or a person who might want to build a lodge out there
but it is still in the ownership of DNR.
MS. CARROLL said it is.
SENATOR TAYLOR said, "Let's talk about some land if you know of
any where a human being might be interested in using it for a
business purpose, either harvesting timber or development."
MS. CARROLL informed members that DNR is selling agricultural
land that brings a pretty good price. Most of the Point MacKenzie
land has been sold. DNR is also holding annual land sales. The
parcels that do not get sold during the initial offering get sold
over the counter. She thought if an entity was interested in
getting 500,000 acres, it would be looking at the things DNR is
doing right now.
SENATOR TAYLOR said that was his assumption too. He asked how
much DNR is bringing in off of state land sales today that would
be lost if the 500,000 acres was given to the authority.
MS. CARROLL said she does not have that information right now.
She estimated DNR has brought in about $4 million from the sale
of agricultural lands over the last couple of years. She offered
to bring Senator Taylor a more accurate number.
SENATOR TAYLOR noted that if an authority took all of the most
marketable lands that DNR has and started to sell them, the state
would lose nothing. DNR would lose the money to the Department of
Revenue and to the general fund. The legislature would no longer
have to pay a subsidy to the AMHS and the ARRC would not have to
subsidize its operations from its real estate operations.
MS. CARROLL said the land sale program in the department is
funded from the sales that occur. If those lands were transferred
out, DNR's land sale program would suffer. She offered to provide
the committee with the types of acreage it might be interested
in.
SENATOR TAYLOR pointed out that the notation on DNR's fiscal note
claims this will deprive the state of a large income source the
state has for its future. He asserted that DNR made $3 million on
lands it managed for 30 years while the University made $43
million in the five years it managed them. He surmised that some
other entity might be able to make more money off of managing
land than DNR so he would not be opposed to giving it to someone
with an incentive to make money from.
MS. CARROLL contended that DNR makes a lot of money on the land
it manages.
SENATOR TAYLOR alleged that DNR does not make money: the private
sector makes money and pays DNR for the permits to use that land.
He said he is speaking to land sales and allowing people to
develop land.
MS. CARROLL acknowledged that DNR has become better at managing
land sales in the last two years when it when it began to have a
revenue stream.
SENATOR TAYLOR said he prompted that to a good degree, in
addition to DNR's timber sales. He said he is proud that
incentive is working.
MS. CARROLL said the transfer of future oil and gas properties
that aren't on the five-year schedule would amount to the loss of
a substantial amount of money.
SENATOR TAYLOR agreed and said one small areawide lease might
support the AMHS forever. He suggested giving THE AMHS something
like Alpine or Kuparuk.
There being no further questions for Ms. Carroll, CHAIRMAN
COWDERY called the next witness to testify.
MR. HERB MCDONALD, Karloff (ph) Transportation, made the
following statement.
Just here by accident but since Senator Elton said that
highway users didn't pay I thought I'd better bring
that up because we pay 32½ cents a gallon and $550 per
vehicle. But I think the real issue is controlling the
subsidy. If it - whatever that is on highways, whatever
it is on the marine highway, you as our representatives
know what that subsidy is and you control it. With the
railroad, you don't control that. I think the gentleman
said they get 11½ million real estate and make about 6
million. I'm sure you could hire that out for about
500,000 - 5 or 10 percent and get that done. And if you
throw the other 50, 60, 70 million a year in there,
that's a pretty big subsidy that you guys don't control
so that - to me that's the issue and I think putting
land to subsidize an operation is a bad thing to do.
CHAIRMAN COWDERY asked Mr. McDonald how much his company pays per
year in licensing fees and fuel or other taxes for use of the
highway.
MR. MCDONALD estimated about $400,000 to $500,000.
SENATOR TAYLOR said he agrees with Mr. McDonald but said that
unfortunately, with the way the railroad was created, it is not
totally under the legislature's jurisdiction. He informed Mr.
McDonald that DOTPF creates the Statewide Transportation
Improvement Plan (STIP), which establishes the manner in which
all highways will be constructed, and the legislature has no
oversight other than whether to fund it.
MR. MCDONALD said he does not mean to be negative toward the
railroad or the marine highway and actually believes the marine
highway should be free to passengers because it is a highway. He
felt the legislature should be making the decision about how much
to subsidize.
SENATOR TAYLOR again said he agrees with Mr. McDonald and then
said those trying to do business in Southeast Alaska not only pay
the $400,000 but also more than 50 percent of the cost of
operating a ferry. Sometimes the ferry doesn't show up or three
show up on the same day going in the same direction. He said if
DOTPF would give Southeast one-half the cost per mile that is
currently spent on roads up north, the marine highway's operating
budget would increase by about 40 percent.
MR. MCDONALD said he is not qualified to argue that. He commented
that when he puts a trailer on the ferry, he is not burning fuel
and paying 32 cents per mile so maybe there is some
justification.
SENATOR TAYLOR said that is true but he is paying through the
nose to put a trailer on the ferry and would not do so if there
was any way to use a road.
MR. MCDONALD said if there is a road there shouldn't be a ferry.
SENATOR TAYLOR said roads run parallel to the ferries all over
Southeast and there are roads to Valdez and Seward.
MR. MCDONALD said he believes the ferry should go from a large
port to places like Kodiak and Cordova, where there are no roads.
SENATOR TAYLOR noted that the original mission statement of the
AMHS said roads would be developed that would be interconnected
to a shuttle ferry system. He stated, "It's only since these guys
got here that they totally changed the mission statement of the
marine highway system and they're still going to run every boat
they can from Bellingham to Skagway and back."
CHAIRMAN COWDERY announced the committee would hold SB 271 and
its companion bill, SJR 32, in committee until a later date. He
then adjourned the meeting at 3:30 p.m.
| Document Name | Date/Time | Subjects |
|---|