HOUSE BILL NO. 127 "An Act providing that the Alaska Railroad Corporation is subject to the Executive Budget Act and providing that expenditures of the Alaska Railroad Corporation are subject to appropriation; and providing for an effective date." 1:41:14 PM Co-Chair Stoltze presented an overview of the day's bills. PATRICK GAMBLE, PRESIDENT & CEO, ALASKA RAILROAD CORPORATION, stressed the significance of the bill and provided history leading up to the state assuming operation of the railroad. The Alaska Railroad Corporation Act of 1985 provided guidance for the innovative relationship between the state and the railroad, including a management board. 1:45:52 PM Mr. Gamble detailed the goal of making the corporation financially sustainable. The corporation had to be able to make enough money to turn revenues into capital projects that would benefit the state, especially connecting the Railbelt. The corporation was formed in 1985 and reviewed by the legislature in 1997. He saw the purpose of the current meeting as a review of conditions to determine the viability of the original model. 1:48:59 PM Mr. Gamble presented the committee with a document summarizing the railroad's performance (copy on file). He suggested that consultants and lawyers could study and rewrite the 1985 act if the legislature believes the budget act requires a deeper review. He referred to the corporation's 14 percent combined annual growth rate over the 24-year period. 1:51:52 PM Co-Chair Stoltze agreed that the policy issue was important and referred to active debates and criticisms of the corporation. He thought there was foundational support for state government having oversight of and responsibility for the railroad. He referred to earlier concerns. 1:54:49 PM Representative Gara questioned the ramifications of putting the railroad under the executive budget act. Co-Chair Stoltze thought there would be differences of opinion. His intent was to have little or no day-to-day oversight of operations. He referred to initial fears that have not been realized and did not think the changes would be significant. 1:57:39 PM Representative Gara asked if the railroad corporation would submit a budget like other agencies and queried how the budget process works currently. Mr. Gamble replied that the budget goes through the board of directors. Representative Gara questioned language on page 2 related to the concurrence of the governor. BILL O'LEARY, CHIEF FINANCIAL OFFICER, ALASKA RAILROAD CORPORATION, clarified that current language states that the corporation may request an appropriation from the legislature; the change would require it to request appropriations. Representative Gara asked if the corporation receives state money outside of the capital budget. Mr. O'Leary responded that the corporation has not received state funds. Mr. Gamble added that the corporate act provided for the corporation going to the legislature for funding if it could not pay its own way. 2:00:56 PM Representative Austerman queried the corporation's plans regarding the legislation. Co-Chair Stoltze stated that subcommittee hearings would be needed and did not think the legislation would move through quickly. He hoped for meaningful input from the corporation regarding the changes. 2:03:36 PM Representative Gara referred to concerns he had with the railroad corporation and reviewed past legal cases against the railroad. He questioned high management salaries and a sense of an insider club, and stated concerns about the corporation's status as a "quasi state agency." He thought the corporation acted either as a state agency or a private company depending on its own interests. He asked if the state currently reviewed management salaries. 2:06:58 PM Mr. Gamble replied that his salary is the only one that is public information, so he could provide only statistical information and not information about the salaries of individuals. He would be able to compare corporation salaries with those in the Lower 48. Representative Gara reiterated historic concerns related to management salaries. Mr. Gamble thought that the issue had changed since the railroad had downsized in recent years. Individual actions must go through him. He speculated that illegal actions may have taken place at one time. He now has three lawyers and a human resource person overseeing personnel actions. Mr. Gamble commented on remarks that the corporation acted sometimes as a state agency and sometimes as a private one, opining that the flexibility to do so was part of the genius of the Alaska Railroad Corporation Act, and has brought millions of federal dollars into the state. He believed the ability to operate both ways was an advantage. He commented that the tax code is unique in the U.S. 2:11:09 PM Representative Gara wanted assurance that railroad property would be public property. Mr. Gamble acknowledged the right to protest on railroad property as long as individuals are not standing in the right-of-way. Representative Crawford questioned how workers would be treated if the railroad came under the federal system, especially related to retirement contributions. Co-Chair Stoltze stated that the intent was to have employee status remain the same. 2:13:25 PM Mr. Gamble agreed and recommended the issue be examined closely, as it is complex. In general, anything involving hiring, wages, or benefits could be affected by outside control and employees will be concerned. He wanted to protect benefits. He referred to a letter in the committee packet from a long-time labor representative on the board (copy on file). He wanted human resources issues to be carefully vetted. He referred to a two-year gap in the corporation's formation process during which some rights were lost and emphasized his desire to make sure that would not happen again. 2:16:18 PM Representative Gara stated an affinity for railroad rank- and-file workers, and discussed salary requests that were denied because the corporation claimed to be financially stressed. He wanted the committee to review management salaries and bonuses over the past three years and asked if the figures could be seen if the names of the individuals were deleted. Mr. Gamble replied that he needed to ask his lawyers; he did not have a problem with the request. He thought statistical information compared with other statistical information might be possible. Representative Gara wanted the information by position. Mr. Gamble pointed out that management salaries were currently frozen. To address revenue loss, there was a hiring freeze in 2007, positions were reduced in 2008, and a management salary freeze was implemented in 2009. 2:20:19 PM Representative Foster liked way the railroad was being run and questioned the time being spent on the legislation. 2:23:15 PM Representative Kelly asked if there were a list of problems with the railroad. Co-Chair Stoltze did not want a list of grievances. He believed the legislation dealt with long-term institutional questions and policy issues. Representative Kelly queried the number of unresolved labor grievances. Mr. Gamble offered to get the information. He thought the number was a high average. Representative Kelly asked about dividends. Mr. Gamble replied that the issue has come up, although not recently. Representative Kelly asked about the quality of the current board. Mr. Gamble spoke positively of the board. Representative Kelly asked if the corporation's unfunded liability was included in the state's unfunded liability. Mr. Gamble responded that the corporation's entitlements, such as retirement and post-retirement medical are paid for out of earnings and not out of the Public Employee Retirement System (PERS). The entitlements went down with the economic downturn; there is currently 80 percent funding for retirement. 2:28:43 PM Representative Kelly queried the sunset date. Representative Fairclough volunteered to be on the sub- committee. She relayed that her constituents have had problems with the railroad. She mentioned conflict with the port in Anchorage. Constituents have also expressed concern regarding rail straightening. Co-Chair Stoltze emphasized that the broader policy issue is related to budget concerns. He acknowledged the existence of many complaints related to the railroad, but did not think it would be productive to bring them before committee. He appointed the subcommittee with himself, Represented Joule, Representative Fairclough, Representative Gara, Representative Foster, and Representative Kelly. He invited the public to call his office with comment. 2:31:57 PM HB 127 was HEARD and placed in a subcommittee consisting of Representative Stoltze as chair, and with Representative Fairclough, Representative Joule, Representative Gara, Representative Foster, and Representative Kelly.