SB 86-ALASKA RAILROAD CORPORATION LAND  3:30:36 PM CHAIR GIESSEL announced SB 86 to be up for consideration. [CSSB 86(RES), version 30-LS0487\J, was before the committee.] Public testimony was opened at the last meeting. 3:31:32 PM KARL GOHLKE, representing self, Fairbanks, Alaska, supported CSSB 86 (RES). He said the Alaska Railroad Corporation (ARRC) has lost three iterations of seasoned employees because of a loss in revenue. A few factors have contributed to the loss in revenue, but the biggest one is the slowdown on North Slope production followed by the closing of the Flint Hills Refinery and the loss of export contracts for Usibelli Coal Mine. SB 86 is a solution that will allow the ARRC to generate more revenue and revitalize communities along the Railbelt. 3:34:19 PM BARBARA BLAKELY, representing herself, Sterling, Alaska, had concerns with SB 86. She explained that she and her husband operate a business in Soldotna and own a condominium in Whittier Manor in the City of Whittier and she sits on its board. She referenced a letter from her board and followed up with a few comments and encouraged them once again to consider Whittier Manor's situation when voting on this bill. One of their concerns is that with no sale of their land or long-term lease to their association that their property values are decreasing at an alarming rate. When the city gave them a draft of the 15-year lease to consider, it included a clause that they would have first right of refusal. That makes them a little nervous. If that land should ever be sold or traded, the Whittier Manor Condo Association should have first right of refusal. MS. BLAKELY explained that a large percentage of full-time Whittier residents live in Whittier Manor. It's hard to imagine the railroad ever kicking them out of their homes. That makes it hard to understand the railroad being so adamant about not selling to them. In Friday's hearing she understood the railroad to say it wanted to sell property that is not income producing. Whittier Manor pays lease payments regularly, but if the railroad's intent is to make money, why would they turn a percentage of their lease income over to the City of Whittier? 3:36:33 PM SENATOR COGHILL thanked her for bringing this issue to their attention and asked if their lease is held by the condo association or by the City of Whittier, because language says to offer the leaseholders the right of first refusal on page 7, line 4, subsection 2. MS. BLAKELY dropped off line. CHAIR GIESSEL said Senator Coghill would get back to her on that. 3:38:27 PM CHAIR GIESSEL finding no further comments, closed public testimony on SB 86. SENATOR WIELECHOWSKI asked who has title over this land: ARRC or the State of Alaska (SOA). 3:39:14 PM BILL O'LEARY, President and CEO, Alaska Railroad Corporation (ARRC), answered that the railroad has title to the land. SENATOR WIELECHOWSKI said he pulled up the statute 45 U.S.C.S. 1203 (1982), which says "subject to the provision of this title, the United State shall transfer all rail properties of the Alaska Railroad to the state." He asked if the title was transferred to the ARRC sometime after that. MR. O'LEARY replied this was in 1982, and the ARRC was not created until 1984 or 85. That is when the transfer from the state occurred. SENATOR WIELECHOWSKI asked how a sale of property would work. Would the state have the ability to appropriate the funds or would the ARRC do as it wished with them? MR. O'LEARY replied that currently it is envisioned that those monies would remain with the ARRC for its own purposes. SENATOR WIELECHOWSKI asked if the timeframe for the right of first refusal should be clarified in the statute. MR. O'LEARY answered there is nothing in the bill at this point about a timeframe. He suggested using 60 or 90 days. 3:42:12 PM JOHN COOK, Chair, Board of Directors, Alaska Railroad Corporation (ARRC), Fairbanks, Alaska, added it is not their intent to sell any lands currently leased by an existing leaseholder unless they want to do it. And at a minimum, there is a 30-day public notice provision. They have no desire to sell income-producing lands to a third party who would then be the lessor. SENATOR WIELECHOWSKI stated that the state has a constitutional public trust obligation to manage lands in the state's best interest, and these are state lands that were conveyed by the U.S. government. Would he object to have a requirement for state and/or local review before any proposed sale, lease or encumbrance? MR. COOK answered best interest findings are in several areas of the statute to for the state to get fair market value for these lands. Having an additional review phase beyond the public notice will delay transactions from happening in a "reasonably timely manner." 3:44:13 PM SENATOR WIELECHOWSKI said this language protects the railroad but doesn't necessarily protect the people of Alaska. SENATOR STEDMAN said he understands why the ARRC doesn't want to deal with possible legislative encumbrances, because it convenes every winter and not 365 days a year like their board does, but he didn't see where the legislature historically has been overly cumbersome to the railroad in disposal of properties, and he didn't understand why they can't come in with bundled transactions or why they haven't brought in projects that are "ripe" for economic development earlier for legislative approval for liquidation. MR. COOK responded that there are a number of practical issues with those suggestions, but telling the public in general and commercial entities (developers) that a legislative process is involved and that means they may or may not be able to have their land at the conclusion of the legislature - maybe it won't even happen - has served as a deterrent in the past. Another impediment is what happens if someone comes to the railroad and expresses interest in a piece of property that they haven't identified, and it's on day 89 of the legislature or the day after adjournment. It ties the railroad's hands in terms of being timely and responsive. SENATOR STEDMAN asked why the legislature can't pre-authorize the railroad in advance of any developer having a proposal that would allow them to do a private market transaction on a particular parcel like the one in Fairbanks that is up for residential development. Normally, when there is developable property more than one entity recognizes it. The Fairbanks property has been brought before this committee several times and is a known development site. 3:49:12 PM MR. COOK responded that Chena Landing residential development is an easy transaction that would work under the scenario Senator Stedman described, but he develops commercial real estate for a living, and one never knows what will walk through the door. For instance, one of the transactions he is in negotiations over includes a fee simple sale of a parcel near Healy that would be used for a hotel development. If pursued it would be a $30-40 million private sector investment. That is an opportunity he would not have been able to contemplate six months ago. Some would fit into the scenario Senator Stedman described and some just wouldn't. SENATOR VON IMHOF said this bill has a three-year sunset as a built-in limitation. However, she offered that maybe they could limit the number of transactions over the next three years to three deals (hypothetically) just for a sense of a pilot project type of finite timeframe and activity. But she is comfortable with the three-year sunset. 3:51:31 PM SENATOR COGHILL moved to report CSSB 86(RES), version 30- LS0487\J, from committee with individual recommendations and attached zero fiscal note. SENATOR WIELECHOWSKI objected. He commented that he has significant concerns with this bill and agreed with Senator Stedman that he didn't understand why these properties couldn't be bundled and come before the legislature for approval. It has been done many times in the past. He worries this is a significant amount of land - 18,000 acres - some of which is prime real estate all across Alaska. The State of Alaska has a trust obligation under the Alaska Constitution to manage that for the best interests of the people of Alaska. The statute, 45 U.S.C.S. 1203, specifically provides that this land was provided to the State of Alaska. A 2009 Supreme Court case, Southeast Alaska Conservation Council v. State of Alaska, is very similar to this one. In that case, the legislature passed two pieces of legislation conveying 250,000 acres to the University of Alaska and the net proceeds were to be used for an endowment trust. A lawsuit ensued, and the Supreme Court held that it was an illegal dedication of state assets and violated the state dedicated funds clause. 3:53:53 PM He cited a Legislative Legal opinion stating a provision in 45 U.S.C.S. 1207 says: "Revenues generated by the state-owned railroad shall be retained and managed by the state-owned railroad for railroad and related purposes." He wasn't sure that applies to land but had asked for a legal opinion. However, a 1984 Attorney General's opinion concluded dedication of land to the railroad to allow them to do with as they please would be a violation of the dedicated funds clause of the Constitution. He is worried about the future impacts of this legislation, because the state would be giving up its authority of this potentially significant right of way. The railroad may never have to come before the legislature again on this. SENATOR WIELECHOWSKI said a process is in place for management of this land, and it has worked in the past. There should be some state and local review of a proposed sale, lease, or encumbrance and there should be some sort of timeframe on right of first refusal. Probably 15 or 30 days is not enough for someone to come up with a significant amount of money to purchase land. As Senator Von Imhof mentioned, maybe there could be a pilot project. 3:56:05 PM SENATOR WIELECHOWSKI removed his objection and said he would mark an "N" on the bill report. CHAIR GIESSEL, finding no further objections, announced that CSSB 86(RES) had moved from the Senate Resources Standing Committee.