SB 86-ALASKA RAILROAD CORPORATION LAND  3:30:54 PM CHAIR GIESSEL announced consideration of SB 86, sponsored by Senator Coghill, that authorizes the Alaska Railroad (ARRC) to sell parcels of land without checking in with the legislature each time. This bill was first heard on April 7, 2017, and at that time public testimony was left open. SENATOR COGHILL moved to adopt CSSB 86(RES), version 30- LS0487\J, as the working document. CHAIR GIESSEL objected for discussion purposes. AKIS GIALOPSOS, staff to Senator Giessel and the Senate Resources Committee, Alaska State Legislature, Juneau, Alaska, explained the changes from SB 86, version \A to CSSB 86(RES), version 30-LS0487\J, and said the sponsor's staff would explain the rationale for those changes. MR. GIALOPSOS said there are three changes. The first adds a new section 17 sunset provision that would take effect three years after the effective date of this bill. That in turn created new conforming sections 2, 4, 5, 7, 9, 11, and 13. All those sections are conforming to the preceding sections that would be enumerated after the sunset provision would have taken effect. 3:33:04 PM The second change further conforms to the sunset provision. 3:33:48 PM The third change is language that introduces the first right of refusal. Both the prior version of the bill and the proposed CS repeal and rewrite AS 42.40.852. However, the proposed CS, version J, adds language in section 12 on page 6, line 19, giving existing lease holders to railroad land the right of first refusal when the railroad plans a permanent disposal of the land. 3:34:24 PM RYNNIEVA MOSS, staff to Senator Coghill, sponsor of SB 86, Alaska State Legislature, Juneau, Alaska, explained the rationale behind the changes in CSSB 86(RES), version 30- LS0487\J. She said the sponsor felt the right of first refusal, on page 6, line 19, language was only fair. The three-year sunset is to give the legislature a chance to take a relook at how the railroad is managing and disposing its land and investing the profits from those sales. SENATOR COGHILL added that the timing is important as some real estate issues are currently on the table. Knowing that private land in Alaska is rare, the ability to get some of these lands into private hands is a good economic development opportunity and the railroad could do well with it. 3:35:56 PM SENATOR WIELECHOWSKI asked her to describe how the railroad got the land in the first place, if it is constitutional to allow a separate entity to sell what he assumes to be state land, and who gets the proceeds from it. 3:36:31 PM MS. MOSS replied that the federal government transferred the land to the state, and it remains state land even though it belongs to a public agency. The proceeds go back to that public agency. 3:36:52 PM BILL O'LEARY, CEO, Alaska Railroad Corporation (ARRC), Anchorage, Alaska, said the land was transferred from the federal government when the state purchased the railroad and the other assets (36,000 acres). The proceeds of land sales remain with the ARRC. Those funds are intended for additional real estate development. CHAIR GIESSEL remembered a federal railroad act in the late 1800s that appropriated land to the Alaska Railroad. SENATOR WIELECHOWSKI asked if he had a legal opinion on the constitutionality of allowing a separate corporation to sell land and keep the assets. He also wanted to know if there was a map of the land descriptions. MS. MOSS said yes, and she will make sure the committee gets the [map and land descriptions] before Monday. CHAIR GIESSEL asked Mr. Cook if he could respond to the constitutionality question of the railroad selling state land. 3:39:11 PM JON COOK, Chairman of the Board, Alaska Railroad Corporation (ARRC), Fairbanks, Alaska, replied that he couldn't speak to the constitutionality, but he would assume that issue was addressed by legal staff while drafting the bill. CHAIR GIESSEL asked if it's true that the railroad has disposed of land in the past, because they have come to the legislature. MR. COOK answered yes. The railroad has come before the legislature for approval of several disposals of land to DOTPF, other state agencies and municipalities, and Eklutna Native Corporation. Even though the number is limited, he assumed the issues were vetted at the time. SENATOR COGHILL remarked that they have given corporations - like Alaska Housing Finance Corporation (AHFC) and the Department of Transportation and Public Facilities (DOTPF) - rights to work within those parameters for land transfers. SENATOR WIELECHOWSKI asked for a description of the sale process if this measure passes. MR. COOK replied that the railroad is required to obtain fair market value for any land disposal either through an appraisal or a competitive bid process. SENATOR WIELECHOWSKI asked where that language was in statute. MR. COOK answered that it is in AS 42.40.350(d). 3:42:56 PM SENATOR BISHOP asked if there is a timeline for the right of first refusal referring to language on page 6, line 19, to try to put a deal together. MS. MOSS replied that is in the policy and procedures for sales. MR. COOK said that it might be in AS 42.40.352(b)(2), but that their policy and or intent is to never sell land out from underneath an existing leaseholder. The railroad has no desire to sell land it is getting rents from. They are trying to grow this endowment through monetizing lands that aren't already earning a current return and invest that into income producing property, which produces an 8 percent return at fair market value. Their goal is not to get rid of revenue-producing customers. SENATOR WIELECHOWSKI asked when property is sold now, and has to be approved by the legislature, if the proceeds go back to the railroad or if that is discretionary. MR. COOK answered that those proceeds would remain with the railroad and be reinvested in its real estate portfolio. SENATOR WIELECHOWSKI asked if that money has always gone to the railroad in the past. MR. COOK answered that in his almost 10 years on the board, he was aware of only one transaction and in that instance the railroad kept $1.5 million in proceeds of the sale of property to DOTPF. SENATOR WIELECHOWSKI asked if that is subject to legislative appropriation and if it is legal for the railroad to receive money directly. MR. COOK said he assumed not. He said the railroad is not subject to the Executive Budget Act. 3:47:25 PM SENATOR WIELECHOWSKI asked if Legislative Legal had evaluated that, as a recent Supreme Court case addressed the issue of funds and appropriations and it seemed that the money now has to be appropriated. CHAIR GIESSEL said her intention was to adopt the committee substitute (CS) but hold the bill until Monday. She asked Mr. O'Leary and Mr. Cook to get those answers for the committee. She noted that she had received a map of the railroad's lands that would address the first question. SENATOR WIELECHOWSKI asked if the railroad owns land outside of the railroad corridor. MS. MOSS answered yes; the railroad owns parcels outside of the corridor. SENATOR COGHILL noted that the railroad owns a dock front in Nenana and leases it out. It has many loading fronts. 3:50:10 PM SENATOR WIELECHOWSKI asked how much coordination occurs now with DOTPF and what protections can be put in place for easements. He didn't want the railroad to have the freedom to go ahead and sell land that could possibly create problems for the gas pipeline or other easements the state might want to retain. MS. MOSS said the railroad currently works very closely with the DOTPF and has a half dozen land exchanges between the two for realignment of the highway and the railroad. SENATOR WIELECHOWSKI remarked that they work together now, because they have to get legislative approval for land sales. But if SB 86 passes, they won't need to do that, and he was interested in putting protections in place for sales that might impact state property. SENATOR VON IMHOF added that there seems to be a risk/reward evaluation of all components that go into a sale. She used a housing development on the Chena Pump Road, for an example. She would be hesitant to say hold off on the housing development for a few years just in case there is an AKLNG project. That kind of evaluation is fair. But, at the same time if the housing market is hot, it's only three years, so let's let them try to get money for their operations and whatever else they need: a risk/reward evaluation. MS. MOSS said she believed the legislature already passed a statute that set out the right-of-way for that gasline. CHAIR GIESSEL said that is true. 3:53:18 PM SENATOR WIELECHOWSKI said he worries a little bit about giving the railroad free rein, because it's a very valuable corridor. He wanted to make sure this was being done in coordination with local communities and the state, and a lot of that is taken away in SB 86. CHAIR GIESSEL said she appreciated the question and believed that is part of the philosophy behind the three-year sunset. They also gave a lot of leeway to a gas project and now they are somewhat restrained in their ability to interact with that project. She asked the railroad to come back on Monday with some concrete legal discussions about the questions Senator Wielechowski had asked. SENATOR WIELECHOWSKI clarified that the railroad couldn't sell the entire railroad to some private corporation, for example, just land. MS. MOSS said that was correct. CHAIR GIESSEL, finding no further questions, removed her objection and announced that CSSB 86(RES), version 30-LS0487\J was adopted. She held the bill in committee.