SENATE BILL NO. 148 An Act relating to the Alaska Railroad Corporation; and providing for an effective date. Co-chair Pearce directed that SB 148 be brought before committee for discussion and referenced the following backup material (copies on file in the original SFC bill file for SB 148): 1. A memorandum from staff in Co-chair Frank's office comparing the original bill with CSSB 148 (Transportation). 2. Amendment No. 1, providing approval for a regional sanitary land fill at mile 388. 3. April 7, 1993, correspondence from Robert Hatfield, President and CEO, Alaska Railroad Corporation. She further advised that SB 148 reflects railroad legislation introduced by the Senate Finance Committee. BERNIE KARL, Chairman and CEO, Alaska Resource and Conservation Center, Inc., and ROBERT KNIGHT, Mayor, City of Nenana, came before committee. Mr. Karl acknowledged committee concern regarding certain railroad operations but cautioned that under the proposed legislation the private sector would not be able to freely joint-venture with the railroad. The City of Nenana, the Alaska Railroad Corporation, and Alaska Resource Conservation Center, Inc. are presently involved in a joint-venture to establish a regional land fill. The project would serve 80% of Alaska's population. Restricting or eliminating railroad ability to hold an equity interest would seriously harm the project. Mr. Karl voiced his understanding that the railroad act mandates that the Alaska Railroad Corporation not come to the legislature for funding. It is to generate its own income. The railroad cannot be expected to utilize its assets to generate income when the legislature passes laws restricting or prohibiting use of those assets. Should the proposed legislation pass, two options arise: 1. The railroad should immediately be put up for sale. 2. The Dept. of Transportation and Public Facilities should take over management and operate the railroad strictly as a means of transportation. Mr. Karl voiced his belief that passage of the proposed bill would not bring about the intended results since the railroad would no longer be able to function. The railroad does not generate sufficient revenues from transport of freight. It must utilize its assets for additional income. On October 9, 1993, approximately 12 landfills along the railbelt will close as the result of federal legislation. Costs associated with meeting federal requirements for a closure fund, water and methane gas monitoring, etc. would total in the millions. A regional landfill will allow communities to close local landfills by the October 9 deadline while providing a site for disposal of municipal waste. Mr. Karl noted that every man, woman, and child creates five pounds of waste per day. If the regional landfill is developed, everyone will derive long-term benefits. Communities will have twenty-five-year contracts and a fixed cost for waste disposal. Alaska has never managed its waste. The Alaska Railroad has 1,835 acres well suited for a regional landfill. It is located at Clear (in the middle of the state), is served by rail, and can accommodate all the communities including Anchorage. The landfill is designed to consist of small, "digester" cells--2.5 acres. Cells will be closed out in three to five years. The cells will be studied in conjunction with the University, and methane gas emanating from them will be used by communities in close proximity to the landfill. Mr. Karl questioned whether the landfill would become a reality if the railroad is not allowed an interest in the project. Mr. Karl acknowledged concerns regarding liability. He suggested that the liability belongs to the state. If Alaska does not have a responsible regional landfill for proper handling of waste, improper disposal problems will follow. Mr. Karl next attested to ongoing EPA suits in the Fairbanks area. Mr. Karl suggested that SB 148 be tabled until next year. He again acknowledged concern regarding railroad operations but stressed need for railroad involvement in the landfill project. Co-chair Pearce noted that the three-year period between issue of federal landfill regulations and impending closure of many local sites left ample time for the railroad to bring the proposed project to the legislature. Mr. Karl advised of need for the strength and credibility of the railroad to back the project. Further discussion followed between Co-chair Frank and Mr. Karl concerning the impact of impending federal closure of landfills. In response to a question from Senator Kelly, Mr. Karl explained that the state is attempting to obtain primacy over municipal waste. Additional discussion of the workings of the proposed landfill followed. The railroad would be an equity owner, would receive a fee for hauling waste, and would share one- third of the profit from the landfill. Twenty-five-year contracts will also provide stability for communities. Mr. Karl stressed that funding for the project would be borrowed from a commercial bank. Co-chair Pearce called for additional comments. None were forthcoming. She then directed that SB 148 be HELD in committee pending comments from the executive director of the railroad, later in the meeting. SENATE BILL NO. 148 An Act relating to the Alaska Railroad Corporation; and providing for an effective date. Co-chair Pearce directed that discussion revert to SB 148 and noted that ROBERT HATFIELD, President and CEO, Alaska Railroad Corporation, and PHYLLIS JOHNSON, General Counsel, Alaska Railroad Corporation, were available to testify via TELECONFERENCE from Anchorage. Senator Sharp provided an overview of changes between the original bill and CSSB 148 (TRA): 1. Modification of language regarding board members, making requirements less restrictive. 2. A loosening of restrictions on use of debt to allow debt financing of all railroad operations. The Senator specifically noted that the issue of property taxes was not addressed within the Senate Transportation version. Co-chair Pearce referenced April 7, 1993, correspondence (copy on file in the SFC file for SB 148) from Mr. Hatfield and asked that he speak to points therein. Mr. Hatfield indicated that CSSB 148 (TRA) represents an improvement over the original bill in that it clarifies many provisions. Mr. Hatfield voiced his understanding that the legislation was introduced in response to committee concern regarding the railroad's equity position in a hotel, as a result of its real estate holdings. A major complaint was that the railroad's tax status impacted the project. Mr. Hatfield explained that at its upcoming meeting, the board will consider taking the equity issue "off the table." That action, as well as legislative efforts tightening restriction on ability to leverage railroad land, will place the railroad in the position of paying taxes on the land as though it was private, fully unencumbered property, yet not being able to use it as such. Mr. Hatfield suggested that it be one way or the other. If the land is to be taxed, the railroad should be able to manage it unilaterally. Requiring the payment of approximately $400.0 per year in taxes without the ability to leverage the land and recover costs is unfair. Mr. Hatfield next spoke to borrowing policies and debt limitations. The railroad board carefully considers all major expenditures, including land and site improvements as well as acquisition of rolling stock. The two-day public session each fall reviews plans for both the coming year and the next five years. Expenditures in excess of $500.0 go to the board for final approval. There is thus substantial public, board, and financial community oversight. Referring to statutory creation of the railroad corporation, Mr. Hatfield noted that it is financially and legally independent of the state. Language further indicates that the state does not stand behind indebtedness or liability the corporation might incur. Debt provisions of the proposed bill are thus adequately covered by existing statutes. Mr. Hatfield next advised that current conflict of interest requirements for board members are more restrictive then APOC provisions set forth in the proposed bill. He voiced support for the prohibition precluding the chief executive officer from serving as chairman or vice-chairman of the board. In his concluding remarks, Mr. Hatfield reiterated that the board is ready to implement a policy that would preclude the railroad from taking equity positions in hotels and other nontransportation related activities. That is the issue behind the proposed bill. Since other bill provisions are covered by existing law, there appears to be little need for the legislation. He asked that the railroad be allowed to prove itself. Mr. Hatfield further noted need for the railroad to be able to conduct site preparation in order to lease its land. Senator Rieger directed attention to language dealing with tax provisions and asked if railroad property would be taxable if leased at less than fair-market value. Phyllis Johnson, General Counsel, Alaska Railroad, said that the railroad is required to lease at fair-market value unless the land is leased to the state or a subdivision of the state. Senator Kelly MOVED that "fair value" be amended to "fair market value" at page 2, line 29. No objection having been raised, the motion CARRIED, and Amendment No. 1 was ADOPTED. Co-chair Pearce directed attention to March 19, 1993, correspondence, (copy appended to these minutes as Attachment A) which she noted sets forth intended railroad policy that the corporation not assume an equity position in nontransportation related activities. She then asked if the proposed landfill project would fall within the definition of nontransportation related activity. Ms. Johnson voiced her legal opinion that the project would not be prohibited. She acknowledged conflicting opinions in this area. Co-chair Frank took exception to Ms. Johnson's opinion that the landfill project would fall outside the proposed prohibition. Co-chair Frank then MOVED for adoption of Amendment No. 2 which would specifically authorize the railroad to acquire an equity position in the regional sanitary landfill at Nenana. Senator Kelly MOVED to AMEND Amendment No. 2 by authorizing the railroad to "incur debt and" equity. Co- chair Pearce called for a show of hands on adoption of the amendment to Amendment No. 2. The motion CARRIED and the Amendment to Amendment No. 2 was ADOPTED. [See subsequent action rescinding adoption, page 12 of these minutes.] Co-chair Pearce next called for a show of hands on adoption of Amendment No. 2, authorizing railroad participation in the Nenana landfill project. The motion CARRIED, and Amendment No. 2 was ADOPTED. Senator Rieger cited language at page 5, lines 3 through 15, and noted that the prohibition to be incorporated within AS 42.40.285(6) speaks to utilization of assets rather than debt to obtain an equity position. He then questioned whether the above amendment to Amendment No. 2 was necessary. Co-chair Frank suggested that foregoing committee action on the Amendment to Amendment No. 2 be considered adoption of a conceptual amendment, leaving discretion to legal staff to insert the proper language in the proper place within the bill. Senator Kelly voiced his intent to ensure that the railroad could incur debt "above the $10 million if they needed it for this specific project." The proposed project is separate from limits set forth within the legislation. Questions were raised by Co-chair Frank concerning the amount of debt that might be incurred for the project, and Mr. Karl again came before committee. He explained that since engineering for the project has not yet been completed, it would not be prudent to estimate total costs. He said that the landfill would be developed in phases. The cost of developing the first cell would be $5 million. DAVE SKIDMORE, aide to Senator Frank, next came before committee. Referencing Senator Rieger's concern, Mr. Skidmore acknowledged that should the committee desire to authorize the railroad to incur debt on behalf of the project, reference to AS 42.40.285(3) at page 4, lines 24 through 28, should be made. If the committee intends to authorize debt beyond $10 million, an exception to AS 42.40.285(3) should also be cited. Mr. Hatfield advised that the railroad would have minimal cash or debt invested in the project as it is currently structured. The railroad would secure the permits and prepare the land. Senator Kelly MOVED to RESCIND committee action adopting Amendment No. 2. No objection having been raised, IT WAS SO ORDERED. Senator Kelly then MOVED to RESCIND committee action adopting the Amendment to Amendment No. 2. No objection having been raised, IT WAS SO ORDERED. Senator Kelly then MOVED for adoption of Amendment No. 2. No objection having been raised, Amendment No. 2 was ADOPTED. Senator Kelly asked what the City of Nenana would be devoting to the project. Mr. Karl said that the project would utilize the city dock. Nenana will use the interior river systems for moving municipal waste. The city will take care of that transportation effort. End, SFC-93, #55, Side 2 Begin, SFC-93, #57, Side 1 Mr. Karl acknowledged that the City of Nenana would profit from the landfill. The city is also working on long-term liability and insurance aspects. It will share an equity position, a portion of the insurance cost, and part of the liability. Mr. Hatfield directed attention to language within Amendment No. 2 and questioned use of the word "sanitary" in connection with the regional landfill. Mr. Karl voiced need to designate the project a "regional landfill" since that term is accepted by EPA as a means of "taking care of large regions." Further comments followed regarding the scope of different phases of the project as well a spin-off, strand- board plant. In response to a question from Senator Sharp, Mr. Karl said it is not the intent that the project become a hazardous waste landfill. He acknowledged that the railroad has the capability of moving hazardous waste out of the state. Mr. Hatfield again expressed concern regarding use of the word "sanitary," advising that the term "regional landfill" is more broadly interpreted. Mr. Karl acknowledged that "regional landfill" is the proper term and suggested that "sanitary" be removed. Senator Kelly MOVED to delete the word "sanitary" from Amendment No. 2. No objection having been raised, IT WAS SO ORDERED. Co-chair Pearce redirected attention to Sec. 11, page 5, lines 23 through 30, and asked that Ms. Johnson again speak to a definition of "nontransportation activity," specifically as it relates to subsection (i) and the movement, handling, or distribution of people or personal property. She expressed committee intent that just because the railroad hauls a commodity such as logs, does not mean that it can become involved in a sawmill or lumber business. Ms. Johnson suggested that there is no foregone legal conclusion regarding whether or not the proposed landfill would be included within the above-noted term. It is a possibility, and an argument could be made. She then acknowledged an opinion from legislative counsel, George Utermohle, indicating that the railroad would be prohibited from obtaining an equity position in the project without legislative approval since the landfill represents a nontransportation activity. On behalf of Co-chair Frank, who was temporarily absent from the meeting, Co-chair Pearce expressed the intent that the railroad not become involved in businesses that are not transportation related. The landfill would fall within that prohibition. For that reason it has specifically been addressed within an amendment to the bill. Co-chair Pearce announced her intent to HOLD the legislation in committee for further discussion of taxation issues. Senator Rieger voiced his belief that the legislature would continue its involvement in the railroad due to complaints from the public regarding whether it is competing fairly. He said that the proper approach is for the legislature to authorize the railroad to issue stock and ensure that "some of that stock is in private hands." Co-chair Pearce concurred. Senator Kelly voiced opposition to that approach. Comments by Mr. Hatfield followed regarding commuter service to Alyeska. Mr. Hatfield next spoke to site preparation by the railroad prior to lease of its land and sought clarification of the committee's position on that effort. He asked that the railroad be allowed to conduct site work (grading, street work, utility connection, etc). Co-chair Pearce responded, "Okay, fine." She then announced that the bill would again be brought before committee at the Saturday morning meeting.