HB 432 - AIRPORT REVENUE BONDS CHAIRMAN WILLIAMS announced the first order of business is HB 432, "An Act relating to the bond authorization for international airports revenue bonds; and providing for an effective date." REPRESENTATIVE JOHN COWDERY sponsor, said, "...authorizing the International Airport to sell revenue bonds for the expansion of the Anchorage International Airport to around $179-plus million for terminal improvements. We've had this bill, we've heard it I think in five different hearings. ... In Anchorage town, where I'm from, I think 10 percent of the population of the workforce jobs are airport-related, it's a very very important bill for not only Anchorage but all of the Interior of Alaska. ... I would like to mention that this bill is about a couple of points -- the Governor had a proposed plan for about $204 million expansion, but during the hearings one of the questions was asked that if the interest rate and the bonds fluctuated say 100-points, what would the impact on the project be in dollars, and I think it came back it would be about $32 million impact. And then later on another question was asked that basically said that if the -- fact did that there was a 100-point spread -- went up would there be downsized airport and the answer was basically, it said that they wouldn't that they had enough, they felt that they could build the plan with this amount of funding. And, of course, there's federal highway funds available to this project as well as I believe some FAA (Federal Aviation Administration) funds will be available." Number 0028 RON LANCE, General Manager, United Airlines, came before the committee and read the following testimony: "Last year at this time United Airlines had 45 employees in Alaska, as of today we now have a total of 225 employees living mostly in Anchorage. This represents a significant investment in the Alaskan economy as well as our confidence in the State to support our growth. "Our present operations are approximately 25 percent passenger- related and 75 percent cargo-related. It is our intent to expand our cargo operations in the near future. The present facilities are inadequate to support further expansion in both areas and needs to be corrected. From United's perspective, it would have been helpful if the proposed Anchorage International Airport expansion plan, which this bill before you today supports, had been passed three years ago with the facilities coming on-line today. "Others will testify about the need for the facilities. There is no question about this need from United's point of view. The facility at this point simply does not fit the size of the passenger and cargo traffic going through Anchorage International Airport. "It is important to stress the fairness of the process by which the expansion plans were decided. United is an employee-owned airline which, as a policy matter, attempts to move decisions down to the lowest possible level. That same type of policy was followed here. All of the airlines that were involved had a chance to participate in the decision-making process. "The Airport Affairs Technical Committee reviewed the plans and reduced them from as many as 15 concepts down to one. There was a lot of give and take during that process and more give and take to come up with the final plan. In short, everyone hade a say and a compromised-solution was reached by the airlines that will ultimately pay for the project. "This bill needs to move this year. Financial markets could not be better for the type of proposal we were making. More delay will result in more triple-parking around gates and problems for passengers and cargo customers as well. United strongly urges that the committee move this bill as soon as possible." Number 0049 REPRESENTATIVE COWDERY asked how many employees do you currently have. MR. LANCE replied approximately 225. REPRESENTATIVE COWDERY asked if he has projections for two, five and ten years. MR. LANCE responded United Airlines' plan, as a company, is to continue to expand in cargo operation. He said if they add another airplane, you're talking about another 35 pilots in addition to his ground-personnel which could be 20 or 30 people. The company is currently looking at that. REPRESENTATIVE COWDERY asked if he was expanding mostly cargo business. MR. LANCE replied primarily cargo. He mentioned they expand their passenger schedule in the summer and are continuing to evaluate that. He said everything's pretty maxed out right now. Number 0058 CHAIRMAN WILLIAMS referred to the consensus among the carriers. He asked if they all agreed that this should proceed. MR. LANCE responded that it's not necessarily the case where everyone agreed. He said he thinks there's certain parts of the project that some agreed, some disagreed, but as a group, according to their operating agreement, we agreed to the project. Mr. Lance noted the carriers that are responsible for 85 percent of the revenue to the airport supported the project and we're the ones that have to pay for it. CHAIRMAN WILLIAMS stated, whether the other carriers like it or not that's what they're getting. MR. LANCE remarked that's democracy. CHAIRMAN WILLIAMS asked how did the vote on the expansion evolve. MR. LANCE responded he is not as familiar with the voting system as the people that are on the committee. He said it's his understanding that nine airlines voted for the project, United was one of them, there has to be a majority of no-votes for the project to be pulled, in this cased that did not occur. REPRESENTATIVE COWDERY reiterated the majority was in favor of an expansion, some we not in favor of a large expansion. MR. LANCE replied true. CHAIRMAN WILLIAMS noted for the record Representatives Kookesh and Hudson are present. Number 0081 REPRESENTATIVE JERRY SANDERS asked Mr. Lance if the expansion would be paid for out of past profits, or are you going to raise prices. MR. LANCE explained it will come out of their landing fees and total rent fees that they currently pay to the airport. REPRESENTATIVE SANDERS asked, future or past. MR. LANCE replied future. REPRESENTATIVE SANDERS indicated there would be price raises. MR. LANCE agreed there are increases in the airlines costs. But the pricing is still a separate issue because it's strictly supply on demand. United Airlines costs are going to up but they can't necessarily meet those costs if the price of the product goes down. Number 0092 EDWARD MERLIS, Senior Vice President, Air Transport Association of America, testified in support of HB 432 via teleconference. He said, "Air Transport Association (ATA) is the principal trade and service organization of the U.S. Airlines. Our member-carriers transport approximately 95 percent of the passengers and cargo flown on U.S. flag carriers. And specifically, our members are responsible for about 85 percent of the traffic at Anchorage International Airport. On their behalf I want to express our strong support for the proposed expansion of Anchorage International Airport's domestic terminal and urge your favorable consideration of HB 432." MR. MERLIS continued, "Airports serve as economic engines for communities throughout the country and the situation in Anchorage is no different. By making the kinds of improvements necessary to bring concourse C up to today's standards, the airport will better serve the needs of the traveling public and enhance the economic well-being of Anchorage and Alaska. On March 17 the letter of endorsement for this legislation was sent to you, Mr. Chairman, signed by the nine ATA member carriers serving Alaska expressing their specific support for the legislation in the strongest possible terms. Let me note, that while this project is not inexpensive, it is fiscally prudent. Airport capital projects are subject to a give-and-take between the airport proprietors and the airlines which use them throughout the country. That results in scrubbing these projects to pass a business-case type analysis. We believe that this project certainly passes that test." MR. MERLIS explained the bonding authorized by the bill will ultimately be repaid by airport-users, no general fund appropriations will be necessary for the terminal improvements and expansion. Mr. Merlis urged the members move expeditiously in light of the fact that certain federal monies will be more likely available if the project gets the green light this year than in future years, what with the continuing constraints on the federal budget. Number 0118 CHAIRMAN WILLIAMS asked what happens if the airport is unable to pay for the bonds. MR. MERLIS responded, "We believe, as we have seen in other airports throughout the country, that if an airline were to drop out, for whatever economic reasons, other airlines would fill the gap and those revenues brought on by the other airlines would accommodate the kinds of costs necessary to repay the bonds." CHAIRMAN WILLIAMS asked, if this drops down to only one airline, who pays for it. MR. MERLIS replied they believe Anchorage is not a case of that kind, it has many airlines serving it because service to Anchorage is good business. He mentioned Trans. World Airlines is also going to enter that market, Reno Airlines and America West have entered the market. Future economics for the industry is bright in Alaska. REPRESENTATIVE COWDERY said, "I guess the question to you would be that, if the project wasn't a prudent project, and the bond community didn't confidence in the ability to pay it back, they certainly couldn't sell the bonds." MR. MERLIS replied, certainly, clearly the bond community puts a kind of due diligence on these things which is very strict, in a way that's the ultimate test. He said, if the bond community believes that this can be repaid, we believe that it can be repaid, that's sort of a safety belt of sorts for you to bear in mind. CHAIRMAN WILLIAMS stated the worse case scenario would be if the oil market stayed where it is and we couldn't afford to pump any more oil, the economy dropped, the airlines will still be here to pay the bill. Number 0142 REPRESENTATIVE BILL HUDSON asked is there an economic risk to the state, out of the general fund. REPRESENTATIVE COWDERY deferred to the Department of Revenue. Number 0148 ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of Revenue, came before the committee to answer questions on the issuance of bonds. He explained one of the situations that they will look at, with the respect to the issuance of these bonds, is credit enhancement. The Department of Revenue will be looking at the possibility - a high probability that they will be able to insure this bond issue, take it up to a triple A rating which will guarantee to the bondholder that payments will be made either by revenues from the airport, in the event that we don't have an airport, then the insurance company would pay the bondholders. Mr. Kinney said they will determine whether or not that's feasible when they go to market and if the cost of the premium allows them to reduce the interest rate to the extent that they have a small profit. Then, in all probability, they will credit-enhance this particular issue that will provide insurance to make those payments. REPRESENTATIVE HUDSON asked if the payment for the bond will be paid from revenues from the airport, there will be no general fund monies required. ROSS KINNEY replied that's absolutely correct. He stated, "One of the features of the operating agreement of the airport pledges the revenues derived from landing fees and space rentals within the terminal, and allows the airport personnel to establish the rates necessary to meet not only the bond payment to provide bond debt service coverage at a ratio of 130 percent after all expenses are paid. And we believe that based on not only the passenger traffic and the carriers through the airport but the freight as well will allow us to do that with rates that are extremely competitive with other airports throughout the country and the world." REPRESENTATIVE COWDERY referred to Chairman Williams scenario regarding the collapse of oil prices. He said he believes tourists will end up paying the largest percentage of the bonds and that economy is protected growth. Number 0174 CHAIRMAN WILLIAMS remarked that's a debatable issue. He announced the committee will come back to HB 432. HB 432 - AIRPORT REVENUE BONDS Number 0317 CHAIRMAN WILLIAMS announced the committee will continue taking testimony on HB 432. Number 0322 MORT PLUMB, Director, Anchorage International Airport, Department of Transportation and Public Facilities, came before the committee in support of HB 432. He stated the terminal's existing deficiencies-need is substantial, and has been carefully documented by a team of experts who have worked closely with the airlines in developing solutions to serious problems. The growth of aviation and related industries is huge on a national and global scale. MR. PLUMB explained what they're presenting is only a small example of the challenges facing airports everywhere, updating outdated facilities and meeting increased need. The plan they are presenting is conservative in the planning assessments, t's a phased-approach, planning to the year 2015 but building to the need of 2005. Mr. Plumb said, "It's fiscally responsible with a plan of finance that requires no general fund money other than the highway match. This plan is the product of a close working relationship with the airlines which resulted in a positive vote for the project, including, among the domestic carriers - that accounted for greater than 84 percent of the passengers, and providing more than 89 percent of the revenue." MR. PLUMB said Anchorage International Airport is the entry and exit point for most of the traveling Alaskans, tourists, and business travelers. The airport is woefully out of balance. The terminal facilities are unable to support growing air side activity. He stated we must avoid the continued piecemeal approach to the airport's needs because it's too expensive and we are losing valuable ground each year as we fall further and further behind in meeting our increasing facility needs. He explained the C concourse is the original facility that was approved by the 80th Congress in 1948 and construction was in late 1949, and early 1950's. Mr. Plum indicated the airport is currently three airports in one, over 5,000,000 people past through the airport last year, it's also a large cargo hub, and arguably it's the international crossroads of the world, more than 470 airplanes currently land daily. There is a large general aviation sector including the world's largest float-plane base. MR. PLUMB pointed out in the late 80's and early 90's there were many changes forced on the Anchorage International Airport. He said they had advanced notice of the long-range aircraft such as the 747-400, but one of the things that probably caught them somewhat off guard was in 1989 when the Berlin Wall came down and the opening up of the former Soviet Union airspace. As a result of that the international activity that had transited through Anchorage International Airport, which totaled up to 1.5 million international passengers and provided over a $118 million in duty- free gross revenue, which resulted in approximately $17 million to $18 million net to the airport, declined by 1993 to less than $8 million gross and less than $1 million to the airport, as well as less than 396,000 passengers. He said that particular event gave them a chance to look over their assets and challenges. Number 0356 MR. PLUMB reported Anchorage has an excellent airfield with three long runways, they provide the home for a lot of tech stops. One of the challenges they were faced with was how to convert some of these tech stops into providing more revenue. In 1996 they received relief from the U.S. Department of Transportation for cargo transfer flexibilities. Since then, the private-public partnership has resulted in over $160 million being invested in the Anchorage International Airport. He noted they were fortunate, they reported double-digit growth at that time in the cargo sector, and last month they experienced 110 percent, and account for 6 percent growth in cargo. In 1997 their (indisc.) increase was about 7 percent with a corresponding 5 percent increase in landings, in 1998 that has somewhat been flat, but as they see from 1990 to 1997 they have this sawtooth and the mean average of that has been at least 4 percent over the last seven years. MR. PLUMB said the reason for giving a little bit of the background on the international side is that some people today look to the international terminal as a place where we may want to convert some of the existing space. He noted they currently have between 50 to 75 international flights going through there a week. In the summer the charters are increased substantially. About 90 percent of the space in the terminal is leased today by the cargo ground handlers, and in the summer it's a home for the tour bags. Number 0374 MR. PLUMB distributed density pictures that show the use of the international terminal in the summer. He pointed out the only external bag area is fairly full, if you can imagine trying to increase that density in the summer you would have quite a problem. CHAIRMAN WILLIAMS mentioned Ketchikan has a similar problem, but it's with fish boxes. MR. PLUMB mentioned the international terminal was build under $26 million and it's provided over $100 million in revenue to date. Its primary customer was duty-free and it was built more or less as a shopping center with eight gates as opposed a domestic passenger terminal. The innards of that particular building are set up for customs and immigration, not for bag makeup and bag claims. He said they looked at that and concluded it is not the proper place to renovate. MR. PLUMB indicated domestic passenger increases about a million every five years. So, if you start out with 1995 at 5 million by the time you get to the year 2015 your almost up to 10 million, it was obvious that the passenger demand exceeded the current facilities. He referred to the current boiler system to the committee, without any redevelopment and with the taking down of C concourse, the current space is only 75 percent of the need. By the time we get to the year 2000 that reduces to 60 percent and by 2005 we're down to 52 percent. He added that the gates are also insufficient. Alaska Airlines is forced to triple-park in the mornings during the summer. He noted the ticketing area is probably about 40 percent of what is currently needed under today's airport standards. He also mentioned the bag-claim area is insufficient. TAPE 98-15, SIDE B Number 0001 MR. PLUMB continued, "...together, and with the airlines it was determined that we had to do a needs assessment. This was a very thorough process, as you've from Mr. Merlis, it may be known as the process second-to-none." He reiterated that they have worked closely with the airlines for the last 18 months. He said, while there's a lot of ways to slice this cake, they thought it was important to plan for the future so they set their goals, at a 20- year to, for the year 2015. After consultation with the airlines, they made the determination that 2005 gave them a phased approach, it let them take care of the current deficiencies of the terminal and it also included the modest increase in passengers up through the year 2005. Mr. Plumb pointed out they wanted to ensure that this new terminal reflected Alaska, they wanted to resolve the long-term major deficiencies, they wanted to maximize passenger convenience, and take advantage of new technology. The most important thing is they wanted to minimize the cost to the airlines, they also had to incorporate the peak in the summer. MR. PLUMB explained they went through the process, it was a lot of give and take, and as was mentioned, it's difficult to find a solution that pleases everyone, but the solution that they arrived at, through the process, in accordance with the agreement, was put forth to the airlines, it was voted on and approved by the necessary amount of people. There were 25 signatories, 12-people voted against it, 10-supported it and 3-abstained, which count as yes votes. It takes two-thirds to vote a project down, which in this case it would have been 17. MR. PLUMB concluded they are providing five additional jet gates, seven additional regional parking positions which include a cross- utilization of three of those jet gates, and remote parking for overnighting aircraft, as well as parking for the cargo aircraft that will be displaced by this new building. CHAIRMAN WILLIAMS announced he will adjourn at 3:00 p.m., there is another meeting scheduled to take place in this room. Number 0033 CHAIRMAN WILLIAMS stated the bonds that are proposed to be paid the airport users. The current operating agreement is due to expire June 2000. He asked what guarantee will the bondholders have that the fees will continue to be collected. MR. PLUMB deferred the question to Mr. Kenny. He added that the Anchorage airport doesn't have a particular airline that provides greater than 17 percent of their revenue. He said he believes, in the industry and the bonding community, that will be looked upon very favorably. CHAIRMAN WILLIAMS asked what guarantees do the airport users have that their fees won't change, absent of an agreement through... MR. PLUMB interjected he doesn't think anyone has guarantees. As Mr. Lance mentioned, the ticket price is driven more by a demand and what the market will bear. They can determine what the cost will be to the airline. Mr. Plumb said he believes Alaska Airlines estimated their costs at about a dollar-fifty, whether that dollar- fifty is passed onto the passenger through a ticket price would be determined by the market, not necessarily by the cost. CHAIRMAN WILLIAMS stated someone from the department will be addressing the bond issues. MR. PLUMB replied yes, if we do not fully explain it, we will get back to you in writing. Number 0059 CHAIRMAN WILLIAMS asked how are we going to make the other 12 members a little bit more comfortable. MR. PLUMB replied, "I think each one of the 12 members probably had their own reasons for that and I wouldn't want to speak for them. Certainly there was a preponderance of international cargo carriers, which is we know they're having some tough times now. We had a couple of the regional carriers since the vote, one of the regional carriers signed on with the ATA letter supporting the project - Reeve. And I believe we've also received a letter from Peninsula Air that said they do not oppose the project, so we have had some additional comment on the vote since November." CHAIRMAN WILLIAMS asked, how much is the highway match fund. MR. PLUMB deferred that question to Mr. Eberle. CHAIRMAN WILLIAMS made reference to the Soviet air space that was opened up. He asked is it currently opened. Can an airline from Japan... MR. PLUMB interjected it is not fully opened but some of the jet routes, which previously we were not able to utilize prior to 1989 - or probably they opened up in the early 90's, today we could. Essentially this allowed planes to use the polar route and not make the stop in Anchorage. Number 0075 CHAIRMAN WILLIAMS asked Mr. Plumb if he foresees the Soviet airspace opening up, and how will it affect Anchorage. MR. PLUMB replied it certainly could happen. He said, "We did an analysis and discounting the growth-factor it would impact, and this was a 1996 figure I believe, but I would have to get back to you to make sure, that 6 percent of the traffic that currently comes into Anchorage, and that's on the cargo side, it was not domestic it was cargo, possibly could be impacted." CHAIRMAN WILLIAMS reiterated 6 percent. MR. PLUMB replied that was the figure that was given to him. CHAIRMAN WILLIAMS asked Mr. Plumb for a better figure on that. MR. PLUMB responded, "I will try, but if we used, and lets say we're up to 500 -- you know 30 aircraft..." CHAIRMAN WILLIAMS remarked, you know better than I the cost of fuel versus stopping in Anchorage, it will be nothing like, "build it and they will come." Number 0085 MR. PLUMB said they certainly are not into the field of dreams. The cost of fuel is very important, as the cost of fuel comes down it becomes less expensive to operate the aircraft. He clarified the Soviet airspace is only going to affect the cargo, not the domestic. CHAIRMAN WILLIAMS asked how can we say that. MR. PLUMB responded, because we aren't getting passenger stops that are utilizing that, that's what they're trying to get. In fact, there are some that vision Anchorage could in the future become a hub. Mr. Plum noted that's visionary and there is nothing that would indicate that's on the near horizon. Number 0097 REPRESENTATIVE COWDERY asked Mr. Plum what his expectations are for employment in future years. MR. PLUMB reiterated their study showed approximately one in ten was associated with the airport, but he didn't want to speculate. He said, "Our indications are that we will continue to grow. What percentage that will be of the total development I don't know, I'm not an economist. But I think the airport growth will be healthy, and I would expect it to be commensurate as it has been in the past. There are some I think, that we hear in some sectors that think it may slightly outgrow, and again some of the economists, I think they look in the one to two percent. Our growth for the next three years, we feel comfortable certainly in the 5 percent in the cargo area, and our passenger area is at the 4 percent, plus-or- minus depending on which forecast you look at." REPRESENTATIVE COWDERY asked will landing-fees increase. MR. PLUMB replied he has not seen anything personally that would show an increase greater than nine-three cents. Most of the figures they used were based on seventy-two cents, as a result of many things, those have temporarily come down. He said he thinks they're down to 46 which blends out to about a yearly of 54, but the analysis was done at 72 and the information he has, provided by the consultants, would indicate that it would not exceed 93 cents and that would be for one year. And then from then on it would start to come down to average around seventy-nine cents. REPRESENTATIVE COWDERY asked how do the landing-fees compare to other airports such as Portland, Seattle or San Francisco. Number 0127 MR. PLUMB responded they compare favorably. He mentioned one airline that was considering overflying one location to land in Anchorage because of the operating expense. He reported Seattle has a $3,000 landing-fee in comparison to $1,240 in Anchorage. Mr. Plum stated, "One of the things that we have to look at is how we count the fuel tax versus the fuel flowage fee and so forth. But the pieces that we put together, and the information we brought you I believe has an analysis of exactly what went into that price." REPRESENTATIVE COWDERY noted the landing-fee has to do with the size of the airplane. MR. PLUMB responded, yes, it's per thousand pounds of gross take off weight, they don't weigh the aircraft, therefore, it's not the exact weight. REPRESENTATIVE COWDERY reiterated it doesn't matter that the airplane is full. MR. PLUMB replied it doesn't matter if it's empty or full to the brim, they pay the same price. REPRESENTATIVE HUDSON asked what is the cost of the curbside improvements. MR. PLUMB replied the roadside is approximately $33 million. REPRESENTATIVE HUDSON asked is that ISTEA (Intermodal Surface Transportation Efficiency Act) or airport money. MR. PLUMB explained they had requested $26.3 million of federal highway funds, and that there would be the match for that. He mentioned that did not include all the roadside improvements but that's what was requested. REPRESENTATIVE HUDSON indicated the matched moneys would be general fund monies. MR. PLUMB replied, that's his understanding. Number 0150 REPRESENTATIVE HUDSON asked what this might have on the overall bonding capacity effect of the State. He said he thinks that's important to note. CHAIRMAN WILLIAMS stated someone from the Department of Revenue will address that. REPRESENTATIVE HUDSON asked if this also affects the Fairbanks Airport. MR. PLUMB replied this in an Anchorage project. He added they do share revenues because they are an international airport system. REPRESENTATIVE HUDSON asked do you also share debt. For example, if necessary, would Fairbanks rates increase in order to amortize that debt. MR. PLUMB stated Anchorage and Fairbanks International Airport rates are the same. The landing-fees, terminal rents and so forth are the same. He noted that they share in revenue and in debt. Number 0166 REPRESENTATIVE KIM ELTON asked, if you share the debt, did the Fairbanks carriers vote on this project. MR. PLUMB responded, yes, the Fairbanks carriers vote on this project. REPRESENTATIVE ELTON asked, when you're talking about those figures (89 percent and 85 percent) applying to the system and not just to Anchorage. MR. PLUMB replied no. He explained, "The 84-plus and the 89-plus, they were the carriers that operate out of the domestic terminal at Anchorage International Airport. As I recollect, from a total revenue standpoint of all the carriers, at Anchorage and Fairbanks, those carriers that provide 60 percent of the revenue voted for the project. And I believe 4-percent abstained... The vote itself, twelve people voted against the project out of a total of 25. As I recall, at Fairbanks, there was 1-for, 1-against and 1- abstention, I think it went across the board like that." CHAIRMAN WILLIAMS asked, "Do you know anything about the insurance, that payments would go into effect when the payment aren't being made, and what conditions they would go into effect." MR. PLUMB deferred the question on the bond insurance to Mr. Kinney. He added that it's his understanding that it would be paid. Number 0189 DAVE EBERLE, Director, Design and Construction, Central Region, Department of Transportation and Public Facilities was before the committee, he said was appointed Program Director for the Gateway Alaska project which includes the terminal redevelopment project primarily because of his experience in large capital projects. MR. EBERLE stated he would go through the scope of the project and will also address the schedule and the cost. One of the main features associated with the project is the demolition of the existing concourse C and the replacement of that with the new concourse C terminal. He explained they would first have to move tenants out the existing concourse, move some airlines around on a temporary basis and do preliminary work with respect to the utilities. The total cost of the concourse C portion is roughly $84 million. The construction of that would start in the fall of 1999. Mr. Eberle said their current plans are to demolish the concourse C late this year/early next year. MR. EBERLE said, once concourse C has been completed (construction period is about two years) they'll begin the remodeling and expansion of the exiting terminal facilities. He referred to the west area on the display stating it will be expanded about 40 feet to the air-side which will allow them to move the ticket counters back, and to give more (indisc.) Space. It will also increase the baggage handling capacity down below. That portion of the project which is related to the expansion of the existing terminal is about $43 million. That will not take place until concourse C is basically open and functional to minimize disruption to the traveling public as well as the airlines. MR. EBERLE further explained there will be air-side improvements that total approximately $38 million. Those consist of a remote fueling apron, overnight parking areas for aircraft and also include the gates and the ramp area improvements. In addition to that, there are the roadside improvements which total roughly $33.8 million. He referred the committee members to a graphic explaining the double-deck curb side area will be extended along the 300-foot face of the new terminal that will increase about 75 percent the total area available to on-load passengers as well load passengers. Mr. Eberle continued his deliberation on roadway improvements. Number 0233 MR. EBERLE stated the schedule depicts more or less the contract packaging they are anticipating. He mentioned back in 1996 they started the needs assessment, went through the concept design and airlines approval. He said we're now in the schematic design phase of the project. The schematic design phase will continue through about November, at which point they want to start the final design for the permanent facilities. Part of this interim schematic design work will also include a small amount of work to relocate the existing tenants. Relocating Delta Airlines is a small amount of money, relocating the existing tenants is also a relatively small amount of money. The demolition will take place at the end of this year/early next year, followed by a site preparation contract to make the site ready for the new concourse C, and also start the ramp expansion. Mr. Eberle noted, once that preliminary work is out of the way, they will award the terminal C replacement contract itself. Once the terminal is complete, they will begin the west core renovation of the existing terminal, followed by the east terminal renovation, they will do both of those renovations during the off-season, during the winter months to minimize inconvenience to the airlines as well as the passengers. He indicated the construction schedule is spread out over a four-year period. MR. EBERLE noted, in current with the terminal work, they will also have the refueling apron work being done out on the air side as well as the C apron gates and overnight parking aprons, that's about two years of work. Another parallel to that is the roadwork itself. The access roadwork will begin early 2000, which will take two summers to complete it, which is about a year and a half construction period. After the bulk of the roadway work is done, they will then reconfigure the parking lots and the internal circulation access. MR. EBERLE stated they developed a management plan for the project and part of that management plan has to do with the bulk of this work by consultants. They will have design engineers that will be responsible for the design. He said they are also going to hire a construction management firm that specializes just in construction management to oversee the construction effort. They will also have a project management support contractor on board to provide project management support on an as needed basis. The road portion of the project, with respect to the gateway, and some of the minor roadwork will be done through DOT/PF, and that's part of the STIP process. Number 0261 MR. EBERLE referred the project cost graph. He said the overall project cost is estimated in the alternative's program. The needs assessment was roughly $190 million in 1997. When you escalate that to the midpoint of the current construction schedule it increases that number to about $205 million. You add to the $205 million the anticipated capitalized interest and issuance costs associated with the bonds, which brings you up to a total project cost of $230 million. The funding sources for the $230 million, as anticipated by HB 432 is $179.2 million in airport revenue bonds, $26.3 million in federal highway funds, and $24.5 roughly out of FAA (Federal Aviation Administration) funds. He said they recently submitted a letter intent for those and the indications are favorable, and won't know for sure until July. CHAIRMAN WILLIAMS asked when was this project begin and how much money was that. MR. EBERLE replied Mr. Plumb can speak to what transpired since he wasn't really involved much at this phase. Back at that point the airlines and the airport were concerned about the piecemeal approach that was being used for concourse C and other work, and they launched a need's assessment to find out where they go in the long-term. CHAIRMAN WILLIAMS stated he wants to know when the project got as big as is today. Number 0281 MR. PLUMB said, "The project was larger when it was first envisioned, it was - and I would have to get the exact figure because we never put the fidelity to it, it was actually in the neighborhood of around $260 and actually came back down. There never was a smaller complete project, there were pieces of projects that people had identified. But, from the airlines perspective, that once we had gone through the committee there was not a smaller portion." CHAIRMAN WILLIAMS indicated, according to this it's $280 million. MR. PLUMB replied, "No. Mr. Chairman, I think that may be what the bonding was going up to. The project is not $280 million." CHAIRMAN WILLIAMS asked Mr. Plumb if it could be worked into phases. MR. PLUMB replied it is a phased-project. The plan was to the year 2015, which was designed to go to the north, which would also include another pier that would have eight gates. He said, "We wanted to have a footprint that we could use for the future. What was determined is there was a point where we need to take care of the current deficiencies and the current needs, and also accommodate the modest increase in passenger traffic, and that point was picked as 2005 and that's how we came up with this particular point. The rest of the increases, those which are the parking garages and the other pier and things like that will be programmatic and the design will be triggered as our forecast levels reach the points where we would go into the design phase." CHAIRMAN WILLIAMS pointed out people who voted against it were very concerned because it become so large. He mentioned he didn't see a problem with C terminal when it was approximately $48 million to $100 million, or something to that effect, but not as big as it is today. Chairman Williams asked Mr. Plumb if there any safety valves. And we don't know what is going to happen to the economy here in the next ten years. And if we did, we'd bid on it. MR. PLUMB referred to the needs assessment which was done by qualified professionals. He said this process identified this need looking at what the current deficiencies were and they also looked at what the forecast was going to be. He reiterated the design was to go out to the year 2015. Without the C Concourse they would only have 75 percent of what they should have to date to serve the traveling pubic, the people who pay the bills in a long run. Mr. Plumb stated, "While you may have received information certainly that indicated there were pieces of particular interest to specific customers, the people that were charged with the responsibility at looking at the total need of the airport did not have a small piece." Number 0315 CHAIRMAN WILLIAMS asked if this could be phased down to a 10-year phase. He noted this is a concern that he is hearing from some people in Anchorage. MR. PLUMB stated the people, that carry 85 percent of the people and provide 90 percent of the revenue, have agreed to what they have presented to the Legislature as what's needed at the current time. CHAIRMAN WILLIAMS referred to the operating agreement, how we get that paid back and the insurance. He asked how will all the users feel comfortable in the year 2000, when it' up, or whatever date that is. MR. PLUMB commented, "That the process that we are going through, the agreement coming to termination and having to go through, no agreement is uncommon in the industry." To give a more credible answer from the user perspective such as an airline, he deferred to Mr. Argue who is the Chairman of the Airline Affairs Committee. CHAIRMAN WILLIAMS said he is very concerned about the operating agreement that is due to expire in June 2000 and how that's going to be handled. He asked if there were any other questions. REPRESENTATIVE ELTON said Mr. Plumb mentioned contracting out for project management. He asked what other contracts did he mention. MR. PLUMB repled construction management and the design work itself. REPRESENTATIVE ELTON asked what percentage of the $230 million is going to be project management type fees. MR. PLUMB responded, of the $205 million of the construction budget, the rest of it is financing cost, about 76 percent of that is anticipated to go into construction dollars itself. Twenty-four percent of it is design and construction management and administrative cost. REPRESENTATIVE ELTON asked, for the department and for your contract. MR. PLUMB responded, yes all of the contractors' management cost. He added that 24 percent includes the 10 percent overall project contingency. REPRESENTATIVE ELTON understood it's about $48 million. MR. PLUMB replied right. Number 0337 REPRESENTATIVE COWDERY asked is parking space going to be lost due to this expansion. MR. PLUMB said the net result will be about the same amount of total parking area. All the parking area will now be encompassed within the loop itself. Right now it's split, half on one side, half within the area. REPRESENTATIVE COWDERY asked, "And the plan, the existing parking is going to be adequate." UNIDENTIFIED SPEAKER noted there isn't going to be a new parking garage added as part of this project. If one is needed that remains to be seen. He deferred to Mr. Plumb. MR. PLUMB asked Representative Cowdery are you speaking about employee parking or... REPRESENTATIVE COWDERY stated he is speaking of the public short- term parking garage. Is that facility going to be adequate to take care of the projected growth? MR. PLUMB replied, "In the phased approach that we talked about, up to the year 2015, we had identified an additional parking garage adjacent to the current garage. At the current time the load factor did not appear to warrant that in the current design to 2005. Once that trigger point is reached, and we would go into the design phase, but we would not go into the design phase until it had a positive present net value and we had done a cost benefit analysis as required by the FAA. So, in short it would have to pay for itself before we would start the project or at least it would certainly have to indicate it would pay for itself." REPRESENTATIVE COWDERY referred a previous statement that there would probably be 15 to 20 contracts left for local contractors to participate in this. He asked was that a ballpark figure. MR. EBERLE replied the schedule he showed, showed 12 contracts which are consistent with the submission that Commissioner Perkins made a week or two ago. He said those are DOT/PF's anticipated contract packaging right now. Number 0359 REPRESENTATIVE COWDERY said, "And you're going to try to make sure that all of our local contractors that have the bonding ability to put in the range of their ability to (indisc.)" MR. EBERLE responded yes, with the exception of Concourse C itself, all of those contracts are well within the range of most contractors in Alaska and there are at least four, if not a half a dozen contracts that could bond and bid the main Concourse C itself. REPRESENTATIVE COWDERY stated, "I don't think it's ever been mentioned before, once a bonds sales are made, until the money is spent, is any calculation of the interest that's going to be earned on that funds." MR. EBERLE replied there were calculations that were worked in the overall plan of finance. He said he didn't have that information but there's significant interest earnings as well as interest expense and hopefully they'll offset themselves to the great extent. REPRESENTATIVE HUDSON asked if they have an Alaska hire provision. MR. EBERLE explained because of the use of federal funds they are not allowed to put in an Alaska hire provision. REPRESENTATIVE HUDSON said he presumed they would have a policy of trying to hire Alaskans. MR. EBERLE stated he believes they have a very good success rate on these type of construction projects. He pointed out the Bradley Lake project had over 90 percent. REPRESENTATIVE HUDSON commented that he would support that. MR. EBERLE said that's a big advantage of the contract - packaging, trying to keep it for Alaskan contractors because they will use Alaskan hire. Number 0379 MR. EBERLE responded to Representative Hudson's question regarding the match for the highway portion. He explained the $26 million highway portion that's anticipated is part of FHWA (Federal Highway Administration) funding, through their normal annual STIP (Statewide Transportation Improvement Program), the match on that would be roughly 10 percent, that's about $2.6 million. CHAIRMAN WILLIAMS asked when did this get into STIP. MR. EBERLE deferred to Deputy Commissioner Kurt Parkan. He added that he believes it's this year. CHAIRMAN WILLIAMS indicated HB 432 will be heard again and will hear his testimony then. Number 0395 ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of Revenue, appeared before the committee on HB 432. He said, "One of the questions as I understood it dealt with the amount that's in the bill talking about the $280 (million). In current statute the provision allows for the issuance of $100,825,000 for the revenue bonds for airport improvements. Those bonds have previously been issued and what we're asking through this legislation is to increase that authorization from the $100 to the $280 which in affect would give us the $180 million that Representative Cowdery is proposing." MR. KINNEY addressed bonding debt on behalf of the State of Alaska and the airport as we know it today. He said, "The numbers that I'm going to give you are through June 30, 1997 so they going to be almost a year old, but we're still in this current fiscal year and these numbers have not been updated. But as of June 30, 1997 the amount of..." TAPE 98-16, SIDE A Number 0001 CHAIRMAN WILLIAMS asked Mr. Kinney to continue. MR. KINNEY stated, "With respect to the airport as of June 30, 1997 there was $39 million of outstanding debt. October 1 of 1999 we will have retired at least $7.8 million of that based on the fact that 'series H' would be completely retired, that leaves about $30 million of outstanding debt on the airport that will be retired by October of 2015. That sort of gives you a thumbnail sketch of what's out there in the way of actual debt that the State has responsibilities for. There is some moral obligation debt dealing with things like the Bond Bank and Alaska Housing Finance and those kinds of corporations, but really not one of any concern that we need to think about. I think that answered the question on the existing airport debt, certainly this debt would be added on top of that." MR. KINNEY explained the international airport system really comprises the two airports, on in Fairbanks and one in Anchorage. That is looked at as one enterprise, so all of the revenues and all of the expenses for both operations are paid out of the same enterprise fund, landing fees, rental rates, all of those things would go to any outstanding debt. He indicated Anchorage helps Fairbanks more than Fairbanks helps Anchorage. But the carriers that land in Fairbanks would also be a party to this expense incurred by the Anchorage Airport. He reiterated that they look at it as one fund. MR. KINNEY addressed the insurance question by Chairman Williams. He said basically what they do in a situation like this, as he mentioned before, they will look at what they can save in the form of interest rates when they look at insurance. He stated, "Essentially insurance, we'll take a bond issue for an entity such as the airport, and increase it's rating from a credit (indisc.) standpoint. In other words to say if the rating on the airport for the issuance of this debt is rated A which is a credit rating provided by the three credit agencies that dictate the credit (indisc.) or the ability to pay of the entity. And we look at the fact that perhaps we can buy an insurance policy that will enhance that credit and raise it to a triple A rated credit which is the highest credit rating available for the issuance of debt. If the cost of the premium is less than what we can save in terms of the interest rates, we will make that decision to purchase. So, out of the proceeds of the sale we anticipate that, based on all of the costs associated with this for financial advisors, bond attorneys, underwriters, discounts, costs of insurance, printing of official statements, and all of the marketing that has to go into a project like this, including rating agencies, reviews based on the document that was put out by the consultant of the airport, that anticipated cost is about $4.7 million which actually includes the premium on the insurance. A lot of that will be dictated by market conditions and interest rates at the time and we'll certainly have to look at that to see whether or not the value is there to ensure that we do that." MR. KINNEY continued, "But let me also assure you that when bondholders review this project, and rating agencies stamp their rating of approval on it, they will look at the airport's ability to pay because what we are in fact pledging are the airport revenues, derived from an enterprise, for the retirement of this debt, it's not going to have an impact on the State's bonding capability because it is an enterprise fund and that's all we have told the bondholders that they really are entitled to revenues that are generated form the facility itself. One of the things that will have to be stated as part of the official statement that we talk about is simply the fact that we do have an operating agreement, the commissioner of Transportation and Public Facilities is in a position to establish rates that are necessary to meet the debt service payments as well as the coverage that's required on a special revenue bond. Usually that coverage will be in the amount of 130 percent of the annual payment, so in other words we'll have to have 130 percent of that money set aside for next years payment so that the bondholder has an assurance it's there, if in fact we haven't got it, we haven't generated it, they have a comfort factor that at least we've got one year there and we've got a year to work on getting it there for the next payment that's due. So there are a number of safeguards from an inventor's perspective and as we all know they will be rewarded based on the risk, real or perceived that they take in being paid. We believe the airport credit is a good one, we believe we will be able to get the insurance at a good rate, we believe that the rates on the bonds are going to be some of the best that we've seen. And we believe that it's an investment - there will be a lot of interest (indisc.)." Number 0057 CHAIRMAN WILLIAMS announced HB 432 will be brought up again at a later date.