CS FOR SENATE BILL NO. 395(TRA) "An Act relating to application of municipal ordinances providing for planning, platting, and land use regulation to interests in land owned by the Alaska Railroad Corporation; authorizing the Alaska Railroad Corporation to extend its rail line to Fort Greely, Alaska; authorizing the Alaska Railroad Corporation to issue bonds to finance the cost of the extension and necessary facilities and equipment; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken pointed out that this bill has two sections: one would authorize the Alaska Railroad Corporation (ARRC) to issue up to $500 million in tax-free revenue bonds to pay for a rail line extension to Delta and Fort Greely; and the other would exempt land owned by the Railroad from municipal land use regulations. He pointed out that CS SB 395(TRA), Version 23-LS1965\H, and its accompanying fiscal note were before the Committee. Senator Therriault, the bill's sponsor, explained that the original bill was developed in response to a recent State Supreme Court ruling, Native Village of Eklutna v. Alaska Railroad Corporation, regarding the Railroad's right to continue to operate a granite quarry in the Eklutna area. Section 1, he continued, contains language that would ensure that Railroad operations could continue and not be subject to differing planning and zoning ordinances as rail lines flowed from one community to another. Senator Therriault recounted that the bill was expanded to include bond package language that would fund extending the rail line to Fort Greely with the possibility of connecting with Canadian rail lines and continental lines in the Lower 48. He assured that the bonding language would not jeopardize Railroad or State assets, as long-term federal contracts would support the bond requirements. He reviewed the planned route of the rail line as well as the goods that could be transported on the line. He concluded that numerous economic benefits would result were this rail line extended. Co-Chair Wilken, noting that the bill sections were very "distinct from each other," specified that the two sections would be addressed separately. PATRICK GAMBLE, President & CEO, Alaska Railroad Corporation, Department of Revenue, communicated that there has been positive response to the bonding proposal, as defined in Section 2, to finance the rail line extension to Delta and Fort Greely. He stated that the federal Department of the Army is interested in the railroad extension as it would provide the Army greater access to training areas as well as to land in the Fort Greeley area slated for an expanded federal missile program to be staffed by the National Guard. He conceptualized that the rail line "would serve as a two-lane road" that could transport military personnel, their families, and contractors, on a year-round basis. He declared that this rail line extension is "very attractive" to the military. Mr. Gamble explained that in order to fund the extension, the Railroad would act as the bond fiduciary and use its tax-free bonding authority, which has never been utilized before, for the $500 million project. He stated that a portion of the bond debt would conceptually be paid by usage contracts between the Railroad and two separate federal military entities: the Department of Defense Army and Missile Command, as, he explained, the contract would be less expensive to the military than their annual operations and maintenance (O&M) expense budgets would be were the rail line extension not in place. Mr. Gamble stated that while discussions have transpired with military personnel within the State, they have not occurred with the Department of the Army. He also noted that discussions with affected Alaskan communities are scheduled in the near future. Senator Bunde referenced comments indicating that the bond issuance would not incur any expense to the State. However, he questioned whether the fact that "the Railroad is an instrument of the State," would not make the State "the ultimate guarantor of these bonds." Senator Therriault responded that due to the fact that "this is not conduit funding," Senator Bunde is correct in that, were there a default on the part of a State owned entity, the State would be responsible. However, he declared that a default would be unlikely, were a contract in place with the federal government. He pointed out that language addressing the federal government agreement is located in Section 4, Subsection (b) beginning on page two, line 30 and continuing through page three, line seven which reads as follows. (b) Before issuing bonds to provide the financing described in this section, the Alaska Railroad Corporation shall enter into an agreement with the United States government that will, in the judgment of the corporation, provide sufficient consideration to (1) pay the principal of and interest on the bonds as they become due; (2) create and maintain the reserves for the bond payments than the corporation considers necessary or desirable; and (3) pay all costs necessary to service or additionally secure the bonds, including trustee's fees and bond insurance premiums, unless those costs are to be paid by a party other than the corporation. Senator Bunde continued to voice concern, as he argued, the federal government could change its position in regards to the contract. Therefore, he asked, that were this a consideration, whether this bond package could affect the State's bond rating ability. Senator Therriault deferred to Mr. Gamble to address the affect the bond package might have on the State's bonding ability. However, he exampled that while one Legislature "could not bind" future Legislators, the State would be obligated to fulfill any legal contracts entered into. Similarly, he argued, that were federal military plans to change and were the missile base dismantled, a signed federal/State contractual arrangement would continue to be honored. AT EASE 9:27 AM / 9:27 AM Senator Bunde voiced a wildlife resource concern as he reminded that the Railroad currently has problems with moose on the rail line. He questioned whether bison could pose a similar problem along the proposed Delta area rail line route. Mr. Gamble responded that the "good news" is that the geography of this route is relatively flat and as such, would allow animals to move out of the way of a train as opposed to the difficulty presented to them by "the deep channels" that the train tracks have in other areas of the State. He acknowledged that this concern must be adequately addressed and the federal government must approve the plan before contract negotiations are finalized. Co-Chair Wilken, being "very familiar with the terrain" the proposed rail line would transit, asked regarding the "physical scope" of the project as described in Section 4, subsection (a) on page two, lines 23 and 24 as he perceived the costs to be high. In addition, he asked whether the project might extend beyond Fort Greely. Mr. Gamble specified that the $500 million project cost estimate is all-inclusive in that it would sufficiently fund any required land acquisition, existing rail line improvements, maintenance, equipment, sidings, small depots, and the terminus of the rail line at Fort Greely amongst other things. He pointed out that the proposal also contains a "healthy contingency piece in the cost estimate for engineering and construction." He noted that the project cost also includes $45 million that would be used to construct a bridge across the Tanana River to assist the military in accessing their land. In summary, he concluded that, including contingencies, the $500 million estimate is not a conservative number. Co-Chair Wilken asked whether the aforementioned bridge would be located at Flag Hill Bridge. Mr. Gamble concurred. Co-Chair Wilken asked whether the bridge construction project would additionally include a rail line extension into the Blair Lakes area. Mr. Gamble stated that, in addition to the main rail line being extended toward Delta Junction, an 11-mile rail extension into the Blair Lakes area would also be constructed in order to allow military vehicles to be offloaded within the parameters of the military training range rather than being offloaded and hampering transit on the main rail line. Co-Chair Wilken asked regarding the terminus slated for construction in Fairbanks. Mr. Gamble responded that in addition to a terminal at the Fort Wainwright military base to accommodate military freight operations, a passenger terminus would be constructed in Fairbanks. Co-Chair Wilken requested that a complete project scope be developed to accompany the bill. Senator Therriault, referencing Co-Chair Wilken's question about whether the rail line would be extended beyond Fort Greely, noted that language in Section 4, subsection (b) on page two, lines 30 and 31, specifies that before the bonds could be issued, an agreement between the federal government and the State must be in place. Continuing, he noted that extending the line beyond Fort Greely would not benefit the federal government and therefore, it would not be expected that their contract would include anything beyond that point. Co-Chair Wilken noted that in previous years, discussions had included building a rail line that would bypass the City of Fairbanks. Therefore, he voiced concern, for the record, that constructing an 11-mile spur line into the Blair Lakes area might rekindle that discussion, which, he attested, "would not be in the best interest of Fairbanks." Co-Chair Wilken asked whether the selling of these bonds would negatively affect the State's ability to bond for the gas pipeline. Mr. Gamble responded no, as he reminded the Committee that the Railroad's tax-free bonding ability is not subject to the bonding limit of the State. In addition, he stated that this bond issuance would not affect the Legislature's previous year's [unspecified] authorization to allow the Railroad to issue bonds up to a 17- billion dollar limit. Co-Chair Wilken stated that the discussion would now shift to Section 1, which pertains to local municipality regulations and their applicability to the Railroad. Mr. Gamble commented that the core issue of Section 1 might "be misunderstood." He quoted from the Supreme Court ruling on the aforementioned case that prompted this legislation as follows: "because the Legislature did not clearly express its intent to exempt the Railroad from local zoning laws, we reverse and remand." Therefore, he communicated, the intent of this legislation is "to request the Legislature to clarify itself for the good of the Court" and thereby "reinstate the status quo" that the Railroad has operated under since the original legislation was implemented 18- years prior. Mr. Gamble declared that the original bill enacted by the Legislature was approved with the knowledge that federal law exempts railroads conducting interstate commerce from local planning and zoning regulations. He stated that that law "is codified in federal law and remains "intact and exists today." He argued that the State's Supreme Court determination that the intent of the Legislature was unclear is wrong, as he submitted that the Legislators "knew what they were doing" as attested by the fact that the bill has been in effect for 18-years. With respect to the Court, he stated that he agreed with "the three-to two hotly contested" minority decision of the Court, and that the two minority Court members "were very pointed" in their remarks that the federal exemption "as mirrored by the State" should prevail for economic development purposes," and that the Railroad, as an entity of the State, should be controlled by the State rather than by an array of differing local municipality planning and zoning regulations. Were the Court ruling to be upheld, he argued, this kind of local zoning "control over a State entity" would result in economic chaos, as approval would be required for each local municipality case. The Court ruling, he continued, would have severe impact on commerce. He therefore, requested that the Legislature clarify that the status quo mode of operation should continue. Senator Therriault supported the Railroad's request that the Legislature clarify the intent of the 18-year old legislation. He voiced support for the continuance of the Railroad's zoning exemption, as he declared that requiring the Railroad to adhere to 13 different jurisdictional zoning and planning regulations would create problems. He noted, however, that Section 1 could be amended to address municipalities' concerns. Senator Bunde understood the range of problems that might occur were each municipality's regulations a consideration. He asked regarding the comment that "the Railroad is a State agency and should be under State control." Mr. Gamble clarified that the Railroad is a State instrumentality. He voiced that the Railroad's position is that any control over an instrumentality of the State should be limited to the State. Senator Olson pointed out that the reason for the Court's involvement was due to the fact that numerous citizens feel that the Railroad has been abusing its authority" in laying down track and acquiring land for 500-foot right of ways without consideration for those affected. He asked how these concerns would be addressed. Mr. Gamble clarified that a 200-foot right-of-way is authorized, and that most construction occurs on Railroad property. He informed the Committee that the Railroad was awarded 36,000 acres of fee- simple property when the ownership of the Railroad transferred from the federal government to the State. He declared that 80-percent of all Railroad construction projects encompass federal funding and therefore, before any work on those projects could occur, an audited "extensive community out-reach" process is required per federal law. Therefore he attested that these projects have "considerable public input." Mr. Gamble noted that the majority of the 20-percent balance of Railroad projects, not supported by federal funding, involves minor things such as roof repair and "other nuts and bolts" non- construction projects. He stated that he would be willing "to address specific cases" in this regard; however, he voiced being unaware of any situation in which the Railroad did not take public concern into consideration. Mr. Gamble acknowledged that public concern and speculation could occur in regard to future Railroad operations such as whether the Railroad might develop a gravel pit in a suburb or construct a hotel that would compete with a another hotel. However, he assured that, were federal funds involved in the development of a gravel pit, it would not be located near a suburb. He also stated that the Alaska Railroad Board serves as one component of the Railroad's "check and balance system," and he noted that the Board's position is that the Railroad is in the Railroad business. Therefore, he noted that such things as the Railroad constructing a hotel would not occur, as it would be outside of scope of things permitted by the Board. In summary, he opined that these concerns are addressed. Senator Olson shared that the primary concern he hears pertains to the Railroad track leading to the Ted Stevens International Airport in Anchorage. He stated that Railroad land in this area is "sizable" and that it could be more appropriately utilized for other transportation purposes. [NOTE: Senator Bunde chaired the following portion of the meeting.] Co-Chair Green recalled that the federal government, rather than the Railroad, specified the land around the Anchorage airport as Railroad holdings in order to address national airport security concerns. She understood that the Alaska Department of Transportation and Public Facilities was involved in this process. Senator Olson voiced appreciate for this information as he could now more adequately respond to public concerns. Amendment #1: This amendment deletes the word "an" in Section 4, subsection (b) on page two, line 31 and replaces it with "a binding". Continuing in subsection (b) on page three, line one, the word "will" is deleted and replaced with "shall"; and on that same line, "in the judgment of the corporation" is deleted. Also on that same line, "consideration" is deleted and replaced with "revenue". The amended language would read as follows. (b) Before issuing bonds to provide the financing described in this section, the Alaska Railroad Corporation shall enter into a binding agreement with the United States government that shall provide sufficient revenue to… Senator B. Stevens moved to adopt Amendment #1 and objected for explanation. Senator B. Stevens stated that this amendment would eliminate some ambiguity in the language and would clarify the intent of the bill. Mr. Gamble stated that the Railroad does not object to the amendment. Senator Therriault stated that this amendment would serve to alleviate some concerns. Senator B. Stevens removed his objection. There being no further objection, Amendment #1 was ADOPTED. SARA HEIDEMAN, Attorney representing the Native Village of Eklutna, testified via teleconference from Anchorage in opposition to Section 1 of the bill. She noted that the Village takes no position on Section 2. Ms. Heideman informed the Committee that another component incorporated in the aforementioned State Supreme Court case is the "balancing of interest test," which is a test that has been adopted by the majority of national courts "to address the issue of governmental immunity from zoning in the last 30 years." She stated that this test has enhanced the public input process in regards to zoning. She respectfully disagreed with Mr. Gamble that the intent of Alaska Statute AS 42.40 is clear as she argued that sufficient testimony regarding the adoption of this Statute did not indicate that all Railroad land would be exempt from local zoning authority. Continuing, she noted that the Legislature could have specifically included exemption language in the Statute at the time, but chose not to. Ms. Heideman stated that the federal "Interstate Commerce Commission Termination Act" referred to by Mr. Gamble "abolished" the Interstate Commerce Commission (ICC), "placed restrictions on State and local regulation of railroads and created the Surface Transportation Board." She stated that this federal law specifies, "that State and local economic regulations which would significantly interfere with core rail operations is prohibited." The meaning of this law, she continued, is that any attempt by a State or local government to prevent the operation, construction, or the discontinuance of a rail line would be prohibited by federal law. Therefore, she explained that no local entity could block the construction of a rail line to Fort Greely or regulate the track as it transits from jurisdiction to jurisdiction. She stated, therefore, that the Railroad is protected by federal law as well as by the balancing test that was utilized by the Supreme Court. She reiterated that an extension of a line, placement of a line, whether to discontinue a line, the location of a train depot, and other core things would be protected by federal law, and would therefore not require the balancing test to be put into place. Ms. Heideman stressed therefore, that, "there is a very finite field within which local governments could regulate in regards to the Railroad." This narrow field, she attested is that to which the balancing test could be applicable. She stated that the Court's implementation of this test "is very fair to everyone," in that it would require the Railroad "to comply with local zoning when compliance would not create a hardship for it…" SFC 04 # 105, Side B 09:54 AM Ms. Heideman reminded the Committee that Alaska Statute Title 35 mandates that, in a similar fashion to the federal ruling for the railroad, the Alaska Department of Transportation and Public Facilities must comply with local zoning ordinances but would be immune from local zoning ordinances "in appropriate cases." Ms. Heideman stressed that under the balancing test guidelines, public and local officials are able to have input, in limited areas that "are not pre-empted by federal law" in regard to the essential operation of the Railroad. Ms. Heideman declared that were Section 1 adopted, it would serve to "eliminate all public input, all input from local governments, and eliminate any need for Railroads to consider any legitimate public or local interest." In addition, she pointed out that immunity from local government zoning is not required in order to operate a railroad. She noted that nationally, the majority of railroad ownership is private, and she stressed that these companies are not immune from local zoning ordinances and continue to operate within and across multiple state lines. Ms. Heideman declared that Section 1 would change "a system that is not broken" and would deny public and local government from infusing legitimate input. She urged that Section 1 be deleted. Co-Chair Green asked for further clarification of language on the testifier's handout titled "Historical Statement by Sara Heideman (Hedland, Brennan, & Heideman) [copy on file]; specifically the language located in the last paragraph that reads as follows. It requires the railroad to comply with local zoning when it can do so without hardship. It permits the railroad to obtain immunity from local zoning when local zoning would interfere with its operations. Ms. Heideman commented that the balancing test would be applied were the Railroad to seek immunity from a local zoning requirement, after the Railroad made an attempt to comply with local zoning by going to the local planning and zoning commission and applying for a conditional use permit. Were this the case, the Court, she noted would seek to balance the public's and Railroad's interest and determine whether any local interference with Railroad operations might incur. She stated that were the Railroad's interests to outweigh the others, it would prevail in being immune from local zoning. She shared that the balancing test evolved from a case in New Jersey in which a state university attempted to place multi- family housing in a community in which that zoning was not allowed. She stated that, in that case, it was determined that abiding by local ordinance would hinder the function of the university, and the university was granted immunity. Therefore, she continued, were the Railroad to prove that abiding by local ordinance would hinder its ability to perform an essential State function, it would be granted immunity. Co-Chair Green understood that the balancing test would be applied by the Superior Court, and therefore, she asked whether the non- prevailing party could appeal the immunity determination to the Supreme Court. Ms. Heideman stated that either side could appeal the ruling. Continuing, she noted that in a situation where the Railroad prevailed, "it would not likely be hindered in its operation unless the opposing party could, during the appeal process, show that it could likely prevail on the appeal or" the opposing side could prove it had the economic means with which to post a bond. [NOTE: Co-Chair Wilken resumed chair of the Committee.] RON LONG testified via teleconference from Seward on his own behalf. He voiced support for Section 2, as it is, he declared, "an exciting project." In addressing Section 1, he stated that, while "the need for consistency across jurisdictional boundaries for rights of way" might supersede those of local planning and zoning commissions, it is important to recognize the rights of municipalities pertaining to planning and zoning ordinance variances as outlined in Title 29. This direction, he continued, would allow the Railroad's essential services to be weighed in relation to municipality interests. He stated that a process should be developed that would consider the Railroad's right of way interests as opposed to its real estate development interests. He pointed out that a recent Department of Transportation and Public Facilities (DOTPF) right-of-way model exemption would be a good model as it addresses federal, State, and local discrepancies and incongruities. Co-Chair Wilken stated that, in his view, Section 1 "is problematic." Therefore, he noted that the Committee has the option of adopting the original version of the bill that does not include Section 1 with the understanding that legislation addressing that issue could be considered early in the next Legislative session. Mr. Gamble stated that, as per the recent Court ruling in the Eklutna case, the Railroad would be required to acquire a conditional use permit for each forthcoming project that affects a municipality and, were the local planning and zoning commissions conditions not deemed to be in the best interest of the Railroad, would be required to litigate each case utilizing the balancing test. This, he shared, would serve to delay the process on a case to case basis on "the entirety of the line." Continuing he attested that, in addition to requiring municipalities and the Railroad to agree on a project, the Court ruling has "opened the door" to allow private individuals or private group to challenge a permit. He also commented that "tying up a case" via challenges and appeals "is a tactic" utilized by various groups. He reiterated that in addition to the length of time required to conduct the permit process, the litigation process would serve to further delay a project. He noted that the Court ruling is not retroactive. Co-Chair Wilken, while being sympathetic to the Railroad's concerns as he recalled the delay experienced by the Pogo Mine operations due to "tactics;" voiced concern regarding balancing "the needs of the Railroad against the responsibilities of our assemblies to have planning" in today's environment and in the future. Co-Chair Wilken referenced a suggestion of the Fairbanks North Star Borough Mayor, Jim Whitaker, in his letter [copy on file] to Co- Chair Wilken, dated May 3, 2004 in which he proposed language that would read as follows. (c) By January 10 if each year, the corporation shall provide notice to municipalities of any new land use proposed for that year by the corporation within municipal boundaries. The corporation shall provide amended notice if a proposed land use is changed or an additional land use is proposed during the course of the year. Except in the event of an emergency, an affected municipality shall have at least 30 days after its receipt of the notice to provide advisory comment to the corporation. In the event of an emergency, the corporation will provide notice to an affected municipality promptly after the event. Co-Chair Wilken opined that the suggestion that a community task force be involved in the process might indicate that more time should be required to address this situation. He noted that other communities such as the Matanuska-Susitna Borough have also voiced concern regarding Section 1. Therefore, he reiterated that in order to provide communities and the railroad proper consideration in this matter, Section 1 should be addressed separately the following Legislative session. Co-Chair Green suggested that the incorporation of precedent- setting litigation rulings that could not be reversed and the establishment of a more rigorous permitting process might assist this matter. She asked whether there is any "logical distinction" between Railroad operations and its real estate holding as she opined that the real estate holding usage, rather than railroad operation projects, are the underlying issue. Mr. Gamble responded that determining the boundary lines in regards to these two issues "is a real interesting question," as he continued that since the recent Court ruling, the Railroad has noticed that the vast majority of the issues pertain to land use. He stated that the determination regarding separation between land use and operations could be very controversial and subjective. This he continued is exampled by the controversy surrounding the Anchorage Ship Creek railroad land wherein the Municipality of Anchorage's planning and zoning commission requirements specify that a certain type of landscaping scheme, including the planting of trees, must be in place. In this regard, he explained that were trees planted per commission's instructions, they would negatively impact the operational ability of the crew manning the line's observation tower. Furthermore, he shared that when the Railroad requested a waiver regarding this issue, the municipality denied one. He stated that were every project required to address things of this nature, it would be very time consuming. He concluded that this situation signifies the intent of the original exemption. Senator Therriault pointed out that this example applies to the development of a piece of Railroad land that would be used for operational purposes. Senator Therriault pointed out that language in Section 1, lines 11 and 12 specifies that any Railroad land leased to another entity would not be provided the Railroad exemption and would be subject to local planning and zoning requirements. He noted that leasing of Railroad land is a revenue generating mechanism. Mr. Gamble clarified that land leased in this fashion today, is not subject to the Railroad exemption. Senator Therriault stated that the aforementioned amendment suggested by the Mayor of Fairbanks is acceptable to the Railroad, even thought the Mayor's letter states that the Railroad disagrees with it. Mr. Gamble voiced that the Railroad's comments in this regard were taken out on context. Co-Chair Wilken stated that this would be clarified. Senator Olson asked the number of Railroad projects that would be negatively impacted were Section 1 removed from the bill. Mr. Gamble responded that a borough-by-borough analysis would be required to answer that question; however, he noted that there are approximately 113 projects under consideration. He stated that this information would be forthcoming. Co-Chair Wilken stated that the struggle with Section 1 is acerbated by the upcoming Legislative Session adjournment date, which, he declared, does not provide significant time to properly address the issue. He noted that the Mat-Su and Kenai Boroughs have evening meetings planned to discuss this issue, and that their feedback would be helpful. He suggested that a committee substitute be developed that might eliminate Section 1 from consideration at this time. Senator Dyson encouraged the Committee to consider a committee substitute that would, rather than omitting Section 1, limit it to specific "high priority" projects. Co-Chair Wilken stated that the intent would be to protect the Railroad until due consideration could be provided. He opined that perhaps a termination date or other measure would be appropriate at this time. Senator Therriault stated that the adoption of Mayor Whitakers' language suggestion or a termination date in this legislation might increase the Committee's "comfort level" without hindering the Railroad's ability to operate. This action, he continued would also provide time to develop alternate language that could be considered during the next Legislation Session. Co-Chair Wilken ordered the bill HELD in Committee in order to develop a committee substitute that could serve as "a bridge during this press of time." He reiterated his concern about the long-term affects of any action taken because the language "is very explicit." He noted that the Railroad's position as stated in Mayor Whitaker's would be further clarified.