SB 160-ALASKA RAILROAD PASSENGER SURCHARGE CHAIRMAN WARD called the Senate Transportation Committee meeting to order at 1:35 p.m. and brought SB 160 before the committee. Number 012 MS. LLEWELLYN LUTCHANSKY, Finance Aide to Senator Torgerson, stated that SB 160 would put a $5 surcharge on all passengers traveling on the Alaska Railroad. It is one of the tools introduced by Senate Finance as part of the legislature's strategy to identify new revenue sources through non-oil industry contributions to the state's General Fund. Number 035 MR. BILL SHEFFIELD, Former Governor of Alaska and President/ CEO of the Alaska Railroad, said the railroad opposes SB 160 and he requested the opportunity to describe how it does business in order to explain its opposition. A $5 surcharge would create or worsen a number of problems related to administrative costs and competitive pricing, and the release of proprietary information of its customers. It would also significantly raise ticket prices for Alaskans using core transportation services, and present a significant disincentive for the development of commuter service. The railroad sells and tracks tickets by segments, not by individual passengers. Re-tooling the system to track by individuals would create an unnecessary administrative cost to manage the surcharge and would do nothing to improve business. The railroad has been developing new markets for its passenger service. Tour buses would have an unfair advantage over the same market segments the railroad serves. The development of a rail station at the Anchorage International Airport is part of the overall plan to develop a commuter service from Mat-Su Valley through Anchorage to Girdwood and the airport. The rail station will also enable the railroad to move cruise ship passengers from Seward and Whittier more efficiently to the airport. A surcharge on every passenger wouldn't allow the railroad to do that. When DOTPF builds the International Airport Minnesota Viaduct, they'll put through a tube so the railroad will have a Y coming into the airport from Seward, cutting down time. The track has been straightened out and a lot of work has been done on the Seward run. The railroad can't legally provide ridership numbers without disclosing proprietary information on its major commercial customers, Westours and Princess Tours. Even if the numbers were kept confidential, it wouldn't require a great mathematical leap for a competitor to figure out what its competition carried on the railroad by looking at the total amount included in the General Fund budget from that source. A $5 surcharge becomes a 25% increase on the adult fare and a 50% increase on the child's fare for the Talkeetna-Hurricane passenger service. In Whittier, a $5 surcharge in an individual trip raises the round-trip adult fare 100% from $10 to $20. A book of ten one- way tickets for $45 would become $95, with most of the cost attributable to the surcharge. Consumer fares are driven up by the cost of providing the service and its relative convenience compared to driving. The Alaska Railroad enabling legislation requires that all revenues be kept by the railroad for its purposes and there is no provision for transfers to the General Fund. Further, the federal act authorizing the transfer was the basis for inclusion of the railroad revenue provision inserted in the state enabling law. There may be conflicts with federal law. Also, the bill may violate federal statute 49 USC 11501 which provides that a state cannot impose a tax that discriminates against railroads. The proposed tax is discriminatory because there is no similar tax on bus, airplane or ferry passengers. The railroad uses Federal Transit Authority funds for some of its capital projects that it was given through the T-21 bill. There may be a conflict. MR SHEFFIELD said, "It's kind of like robbing Peter to pay Paul if you tax the railroad which is state-owned." MR. SHEFFIELD discussed the railroad's net revenues for capital improvements, and the ways it has improved technology and strengthened assets to provide better service. Number 248 SENATOR PEARCE said she is keenly interested in the Anchorage International Airport rebuild of the domestic passenger terminal. She understands that the railroad received money from the federal government through the largesse of Senator Stevens, allowing the railroad to build the terminal at the airport. In discussions with members of the tourism industry, she has been told that they think these dollars ought to be used by the railroad for on-going track maintenance and building the railbed. They are concerned that because of the array of directions cruise ship passengers go, the railroad may not have enough tourists using the rail to be able to afford overhead and maintenance on the terminal building even though it's cost-free and will be leased from the airport. She asked Mr. Sheffield to share financial information that indicates the terminal can be self-supporting. MR. SHEFFIELD replied that he didn't have the figures before him but would follow up with Senator Pearce on it. The railroad can afford to pay the overhead and maintenance of the building. The airport is run by a consortium of airlines that don't want the railroad station to cost them money, and the railroad has assured them that it won't. It will begin its tunnel operation so the airport can go ahead with road work next year. The tunnel with a moving sidewalk will move passengers from the parking garages into the main atrium of the airport. The railroad will build and pay for the tunnel which will also benefit the airport. The railroad will generate enough income from passenger service to handle overhead. SENATOR PEARCE asked if the ARR has signed letters of agreement from tour companies to bring people to the airport railroad terminal. MR. SHEFFIELD said no, it has agreements this year with some of the major cruise ships that will use the Seward turn. Both Princess Tours and Westours have guaranteed a certain number of passengers. This year a second train will go to Seward, and a person will have about 7 different ways to get to Seward and back to Anchorage, a popular option. The airport terminal won't open until 2002. Next year the railroad will appear in the cruise ship brochures. SENATOR PEARCE said that makes a lot of sense, but she's concerned that the railroad would have enough people using the facility at the airport terminal. MR. SHEFFIELD said the airlines will start checking luggage for the cruise ships at Seward this year so that it no longer will go to the airport, a big plus for the railroad and the airport. He said he doesn't doubt that with more ships, once the railroad is available and competitive on time and dollars, the people will be there. CHAIRMAN WARD asked who the railroad competes with. MR. SHEFFIELD said that with Seward, it's competitive with buses owned by Princess Tours and Holland America Line. There is no written agreement they will quit running the buses. The railroad would haul two loads of 300 cruise ship passengers each, and the railroad station has a holding area on the second floor for 350 people. Certain cruise passengers only go to Seward in order to catch a plane and return home. The railroad will get 40% of the 1500 people on a ship. It will rehab the Seward dock this year as a passenger dock, with a freight dock next door. Number 390 MS. CARRIE WILLIAMS, City Manager of Whittier, stated that the City supports SB 160 with one proviso. While it is appropriate for the state to seek other means of raising revenues, in the case of communities such as Whittier that is due to open through the Anton- Anderson Tunnel in May 2000, the surcharge would constitute in the interim a burden of a 50% tax. She asked that in these affected communities some provision be added to the bill allowing their exemption until June 1, 2000, when road access will be available to the local residents. SENATOR LINCOLN asked once the tunnel is built and the residents have an option, would most people use their own vehicles instead of the train. MS. WILLIAMS said certainly, the Whittier residents are not anticipating ever using the shuttle again, parking cars in Portage or on flatcars. The winter rate currently is about $50 round-trip for a vehicle. There would be no logic in maintaining that run when the anticipated toll through the tunnel is $15 round- trip. MR. SHEFFIELD commented that it is uncertain what will happen to the shuttle when the road opens. A direct train leaves Anchorage every morning and services the day cruises and about 7 day boats in Whittier. Trains would go through the tunnel four times a day with passengers in the summertime. CHAIRMAN WARD mentioned a draft amendment to the bill, and asked the City of Whittier's opinion regarding the transfer of the Whittier dock to the Alaska Railroad. He said it appears to be a federally transferred asset to a state-owned asset. Number 469 MS. WILLIAMS handed out the amendment and said the City has been in contact with the Department of Defense since the tank farm and DeLong Dock were closed down. Whittier needs to support its fishing and freight industries. Since the tunnel ruling and the support of the courts, Whittier has anticipated increased fishing in the Sound. The Benedict plant in Anchorage is looking forward to increased product. The tidelands under the dock and the dock itself are extremely important assets to be kept in a public purpose. The city had no authority over those lands under the federal ownership. If it becomes surplused, it would go through the standard federal government procedure, looking first at the needs of other federal agencies. Research vessels and private enterprise want to come into Whittier. The city has received a proposal to expand the private dock areas to support the excursion fleet. Whittier is developing its tax base so it can provide government services, as the legislature can no longer support it with increased revenue sharing and Safe Communities. The city sees that it needs to bring these entities in. Under statute the Alaska Railroad is for rail-essential purpose only. MS. WILLIAMS pointed on a map to the Alaska Railroad freight yard. She commented, the waters reach 600 feet right off the breakwater. She referred to a survey map showing the substantial tidelands attached to the DeLong Dock. The property fragments the uplands. All of these issues brought the city to the Department of Defense in 1997 to ask that it be considered when the property is surplused. MS. WILLIAMS said the city thanks the railroad for obtaining the ground lease on all the non-rail-essential areas above the rail yard to develop business. It is a shared revenue and the railroad will see profits "as we privatize everything we possibly can, even parking and items like that." The city decided a permit was needed but couldn't obtain it from the Department of Defense. This year the Alaska Railroad made an offer to go into jointly permitted use in the interim until the property becomes surplused. MS. WILLIAMS believed it was progressing well, not knowing the end result would be a loss of all title to tidelands and the dock to the Alaska Railroad under pending draft legislation at the federal level. CHAIRMAN WARD asked if it would be detrimental for the state if the property went to the railroad instead of the city. MS. WILLIAMS said local governments need a preference over lands within their boundaries for economic development. The state directive is to become more self-sufficient, so the city is looking at local hire and diversification. The City of Whittier has 28 acres and must support more business development in freight, fish and tourism. CHAIRMAN WARD asked if the congressional delegation succeeded in transferring the dock to the railroad, would Whittier fishermen be able to supply the new fish processing plant in Anchorage. MS. WILLIAMS said although there have been conversations about joint use, she was not under the impression it would have priority. With all the new excursion and tourism operations coming in, the city has no city dock facility, only a recreational dock. A couple operators lightered off the dock. The AHTNA development would have more excursion ability from the DeLong Dock. She asked how private enterprise could compete with capital-free investment of a tax- exempt entity. The amendment by Senator Pearce would give the legislature the oversight to decide where assets could best be utilized. Many municipalities have properties that the federal government may surplus. CHAIRMAN WARD asked if any development has been done on the dock. MS. WILLIAMS said the federal government has only allowed the emergency response vans on the dock. SENATOR LINCOLN referred to a letter from Ms. Williams to the Department of Defense (DOD) in August 1998 regarding the dock facilities, and the resolution expressing their desire to obtain the property and related tidelands. She asked their response. MS. WILLIAMS said DOD packaged this with their request at the Alaska level for disposal of that property, sent it to Hawaii and then back East. Beyond that, the city has heard nothing in writing until receiving this draft legislation. TAPE 99-10, SIDE B Number 583 SENATOR LINCOLN commented it is no surprise, then, to DOD that Whittier wants the dock. MS. WILLIAMS said in 1997 when the city was looking at the tank farm and DOD was trying to find a bidder to use it again for fuel, the DOD gave her the "heads up." The city contacted Senator Stevens and he was helpful in defining ownership. She pointed out the railbelt area and the deep water port. CHAIRMAN WARD asked if she has calculated a dollar amount the city would lose if it doesn't get the dock. MS. WILLIAMS replied the revenue from wharfage is nominal to the loss of economic development in support of fishermen. The standard tariff is not part of the issue. The city collects sales tax from the tenders. As the statute is currently written, the Alaska Railroad is technically under no obligation to collect local taxation. Local employment of fishermen is an issue. The road will be a tremendous asset to their ability to get fresh product to the Benedict plant in Anchorage. SENATOR PEARCE asked if the only deep water port availability is the DeLong Dock and the railroad dock. MS. WILLIAMS answered yes, that these waters are extremely deep and there is literally nowhere to build another dock at the current time. She handed out the HGR Short-term Critical Needs Plan that identified the DeLong Dock as the commercial fishing dock. If cruise ships return, they need to be at the head of the bay in the northwest corner "to avoid the 250 buses per ship coming right into the middle of our small boat harbor area." CHAIRMAN WARD invited Mr. Sheffield to join the discussion. Number 537 MR. SHEFFIELD said he didn't want to leave the committee with the impression the railroad hasn't cooperated with or tried to help the City of Whittier. He led the way on the ARR Board to help Whittier. He thought it was unfair that the state was going to build a road into Whittier where there isn't a public restroom or place to park a car, and no money. DOTPF, the city and the railroad each put in $50,000 to participate in a master plan of immediate and long-term needs. The railroad gave the city a long-term lease on all the land that it doesn't use for essential railroad purposes, mainly the intermodal facility for unloading freight. It's free for the first five years, graduating up to a sharing of the profit from the leasing of the land. Whittier's income is from taxation of improvements and buildings on the land. It was a benevolent lease with the railroad providing funds to survey the land into segments so the person leasing can pay for the survey of the amount of land they lease. The railroad has been working for six months with the Corps of Engineers to get a temporary joint use permit of the DeLong Dock for the city and the railroad. It is not yet resolved. The railroad had entered into a Memorandum of Understanding (MOU) that it thought Whittier would agree to, but it did not. The MOU states the railroad would make efforts to get the dock into its ownership and apply to DNR to use the tidelands underneath the dock and 20 feet around it. All other tidelands on the shoreline would be recommended to go to the City of Whittier. The railroad would also work to get the tank farm transferred to the city as early as possible. Part of it will be used for parking and staging of the road operation. The railroad and the city jointly reserved some property that will be worked out as tourism facilities are developed. MR. SHEFFIELD reiterated that the railroad wants the dock. It has the marginal wharf already and the railroad dock where the barges come in every 7 days from Prince Rupert and Seattle. The railroad could rehab the DeLong Dock and accommodate fishermen as well as day cruise operators. State Troopers might want to put a boat there at some point, as well as Fish & Game and the Coast Guard. The railroad formerly owned the dock, but the Army took it to put in the fuel pipeline from Anchorage to Whittier. The railroad thinks it can work out an agreement with Whittier. Number 442 CHAIRMAN WARD asked if the dock were transferred to the City of Whittier, did he think the city would work with the railroad. MR. SHEFFIELD said he didn't know. It would be in the railroad's and the city's best interest to work together if the dock was transferred to the railroad. New businesses and commercial fishing boats will come in. With the road, freight could go out seven days a week. The railroad will rehab the railroad dock so that barges can pull up alongside it. Now they go to the marginal wharf. There isn't a lot of land available. SENATOR LINCOLN agreed there isn't much land and the Alaska Railroad takes up a lot of frontage. Referring to the unsigned MOU, she asked why Whittier couldn't as easily as the ARR develop the dock facility for cruise ships, day cruises, commercial fishing, and fish processing. She suggested that perhaps it could have an agreement with the railroad, and said that parcel would help the economic development process for that small community. MR. SHEFFIELD said it's an intermodal facility important to the railroad's economy. The railroad went to the bank to borrow funds to rehab the dock, which needs expensive repairs. ARR has the wherewithal while the City may not, at this time. The railroad is trying to get the joint use permit. SENATOR LINCOLN asked if the railroad has started the dialogue with the federal government on the dock transfer. MR. SHEFFIELD said Congressman Young put in legislation, initially unbeknownst to him, to transfer the dock to the Alaska Railroad. He received a copy of it only the day before yesterday. CHAIRMAN WARD asked how recently the legislation was introduced, and MR. SHEFFIELD said he didn't know exactly, but within the past 10 days. SENATOR PEARCE commented that the railroad already owns every inch of deep water where a dock to handle large ships could be built in an area that has road access. MR. SHEFFIELD disagreed, saying the whole frontage from boat storage to the creek is controlled by the city and it has a road. SENATOR PEARCE said it can't be accessed because you can't cross railroad property, so it controls access to the tidewater. MR. SHEFFIELD said they gave the road to DOTPF which maintains it. MS. WILLIAMS countered the DOTPF has been given those properties to extend the road to the north to meet federal highway standards and provide a pedestrian path. It's not available, the waters drop off extremely deep right there. With airspace withheld, DOTPF would not allow roads off this federal highway into the deeper water, even if the engineering was there. The railroad has withheld the rights for a spur track to access those lands if the tank farm is removed. SENATOR PEARCE said this dock is the only feasible facility for upgrade. The legislature put a lot of funds into the road to Whittier to open up access to Prince William Sound, and it doesn't make sense to invest in access and then have the railroad tie up all the water access in Whittier. She said she didn't hear Governor Sheffield talk about any essential railroad business that it can't already do with the land and the dock it presently owns. She doesn't support railroad ownership of the last open piece of land. The public has very little control over what the railroad does. MS. WILLIAMS said cruise ships and excursion boats along West Camp Road have become an impossibility due to DOTPF federal road standards and airspace requirements, leaving only the head of the bay. Number 271 SENATOR HALFORD commented that we have two creations operating under charter and law of the State of Alaska who both have legitimate interests and constituencies that the legislature wants to serve. The railroad can afford to give Whittier some land. He said he didn't know if he was smart enough to know where that should be or how it should work, but the two entities ought to be able to figure it out. MS. WILLIAMS pointed out triangular lands on long-term lease with a fee split with the railroad, allowing for development. That is why the city has worked to obtain the joint use permit for the DeLong Dock, and when the draft legislation came from Don Young's office, "it was quite a shock." SENATOR HALFORD discussed the unsigned MOU that would produce two lots, with the railroad as the lead agency, and asked if it was somebody's advocacy point of view and how far from agreement they are. MR. SHEFFIELD replied that he was under the impression that the City Manager had agreed to the MOU and would sell it to her council. He said that didn't happen because it wasn't presented positively to them. MS. WILLIAMS said she and the Mayor rejected the MOU at the last meeting in February. They felt the compromise was that the railroad had the financial means to maintain the physical structure of the dock, and the city had adjacent tidelands, so the city would receive the tidelands and the railroad would receive the dock with a joint use purpose designation. The city would lease the tidelands to the owner of the capital improvement. SENATOR HALFORD said unless there is a legislative solution that may fly in the face of congressional action, "what we should be doing is locking everybody in a room and saying nobody gets food or water until you agree." MS. WILLIAMS clarified for Senator Lincoln that the 6.13 acres is tidelands and a fraction of filled uplands. CHAIRMAN WARD asked if the railroad's position is to wait for the federal legislation to transfer the dock. MR. SHEFFIELD said he didn't know if the transfer would happen, but he's going forward with the Corps of Engineers joint use permit so the railroad can use the dock this year. The railroad would still do an MOU with the City of Whittier. SENATOR HALFORD commented that the argument is over the terms of the MOU. MS. WILLIAMS said the intent of the federal legislation is total ownership of the tidelands, filled tidelands and dock structure itself. Consequently, the city has brought this request for amended language to the statute. It should be an open competitive process for assets, and the city has contractors who could operate the dock. SENATOR LINCOLN said in Galena, Ft. Yukon and Ft. Greely the Department of Defense works with the community to surplus its properties. She was puzzled about where the federal legislation came from. TAPE 99-11, SIDE A Number 003 MR. SHEFFIELD replied his land person has worked for six months with the Corps over the temporary use permit. He was unaware that the city asked DOD for the dock transfer. CHAIRMAN WARD asked for discussion on SB 160. SENATOR HALFORD said he's reluctant to either amend it or move it. He'd like to see the city and the railroad "get together and make a deal." CHAIRMAN WARD said the railroad opposes SB 160. SENATOR LINCOLN said the effective date should be June 1, 2000 to exempt the affected communities, not January 1, 2000, to avoid a double surcharge when the tunnel opens. She would want to amend the bill. SENATOR HALFORD suggested that amendment, and amending the surcharge to $5 not to exceed 15% of the ticket price in Finance Committee. He said $5 to run the shuttle to Whittier would be too high. He would be willing to move the bill out if that was the wish of the committee, but he repeated that ultimately he would like to see Whittier and the Alaska Railroad work out who gets what part of the dock. Number 092 SENATOR PEARCE said she didn't disagree but she didn't think there should be yet another entity receiving federal property without the legislature knowing about it, because it creates a long-term liability and it could also create an anti-competitive situation. She wouldn't have a problem with the railroad wanting land for essential railroad services, but its lobbyist in D.C. dropped something in a bill that the legislature wouldn't have known about without the vigilance of the City of Whittier. SENATOR PEARCE said she is tired of the largesse of the congressional delegation who don't plan in conjunction with the state legislature, which now has a billion dollar fiscal gap. SENATOR PEARCE moved her Amendment D1. The text follows. Page 1, line 1, following "Act": Insert "relating to acquisition of federal land or federal property by the Alaska Railroad Corporation;" Page 1, following line 3: Insert new bill sections to read: "*Section. 1. AS 42.40.285 is amended to read: Sec. 42.40.285. Legislative approval required. Unless the legislature approves the action by law, the corporation may not (1) exchange, donate, sell, or otherwise convey its entire interest in land; (2) issue bonds; (3) extend railroad lines; this paragraph does not apply to a spur, industrial, team, switching, or side track; (4) lease land for a period in excess of 35 years unless the corporation reserves the right to terminate the lease if the land is needed for railroad purposes; (5) apply for or accept a grant of federal land or federal property within a municipality; before approving an action under this paragraph, the legislature must determine that the federal land or federal property is required for essential railroad purposes. *Sec. 2. AS 42.40.410 is amended to read: Sec.42.40.410. Federal land. Except as provided in AS 42.40.285(5), the [THE] corporation may submit applications on its own behalf as an instrumentality of the state for acquisition of federal land available under federal law that will enhance the essential railroad operations of the corporation if it is available under a federal law other than the Alaska Statehood Act of 1958 (P.L. 85 - 508, 72 Stat. 339), as amended. The corporation may receive in its own name conveyances of all interest in federal land." Page 1, line 4: Delete "*Section 1." Insert "Sec. 3." Renumber the following bill section accordingly. Without objection, the amendment was adopted. CHAIRMAN WARD asked the wish of the committee. SENATOR PEARCE moved CSSB 160(TRA) out of committee with individual recommendations and accompanying fiscal note. Without objection, it was so ordered. SENATOR PEARCE asked Mr. Sheffield if Mr. Zane is lobbying for the Alaska Railroad in Washington. He replied that he is. She asked how he could not have known that Mr. Zane had the amendment put in. MR. SHEFFIELD said he was out of town for a few days and didn't know when it was drafted or when Congressman Young would introduce it. He did know the railroad was going to ask for it. It looked like a long process to get the dock transferred, and it was advanced to the railroad that legislation might be a solution. Number 154 MR. SHEFFIELD stated for the benefit of Senator Halford who wasn't present earlier in the hearing that SB 160 would be devastating to the railroad for the commuter business it has planned for 2002 or 2003. He said the head tax makes it non-competitive, and it's discriminatory and unfair.