SB 271-MARINE AND RAIL TRANSPORTATION AUTHORITY  CHAIRMAN COWDERY announced SB 271 to be up for consideration. SENATOR WARD, sponsor of SB 271, moved to adopt the proposed committee substitute (CS) to SB 271, Version C, labeled Utermohle, 4/19/02. There were no objections and it was so ordered [TAPING DIFFICULTIES]. He said he thought it is in the best interests of the State of Alaska to form an authority, give it a half million acres of ground and start the ferry system on its way to becoming a self- sufficient transportation system. After talking to members, it became clear that combining the Alaska Railroad and the Alaska Marine Highway System (AMHS) would not happen so a committee substitute was drafted to remove the Alaska Railroad. MR. BOB DOLL, Director, Southeast Region, Department of Transportation and Public Facilities (DOTPF), said: The bill has two major impacts. First, it creates a new administrative and operating regime for the Alaska Marine Highway System. That new regime would isolate the Marine Highway System from the public contact process that the department has in place and which we believe should be maintained and strengthened. Secondly, it attempts to create a funding mechanism for the Marine Highway through the sale of public land. In the light of these primary impacts in the bill, the department does not support SB 271. With regard to funding the Marine Highway through the sale of land, I'll be brief since that's not my expertise. Land located along the railroad right-of- way, of course, has an inherent value from the fact that it is linked to a transportation method that also links the communities along the way. There is no analogy for the Marine Highway System's routes. It is our understanding that the land contemplated for sale by SB 271 is already available for sale. We are skeptical that SB 271 would create a market for public land that does not already exist. If the land in question does, in fact, find buyers, the resource will have a finite life that we'll eventually find ourselves in much the same circumstances as today. Turning to the operating regime for the Marine Highway, there are a number of issues that the bill raises. The first is that the bill would remove the Marine Highway from the Department of Transportation. The Department is the logical location for an organization whose primary function is to provide a public transportation system, one that is responsive to public needs and imaginative in meeting them. The creation of a Marine Highway Authority will not improve public access to the Marine Highway operations and planning, but would rather isolate it in its direction from the public's influence. We believe such an isolation is not in Alaska's interest. Secondly, the bill sets up a new competition for federal funds, the results of which are difficult to predict. Currently, the Department is by federal law the conduit by which federal highway transportation funds are allocated to the state. Within the Department, the Marine Highway competes with all other transportation modes for the use of those funds and, to date, the Marine Highway has competed quite successfully. The bill provides for Marine Highway Authority participation in the Department's planning process, but the Department would have a drastically reduced interest in the operation and maintenance of the Marine Highway System. I have real concerns about the continued ability of a Marine Highway Authority to compete for federal funding in a department from which it has been severed. The bill does nothing to change the Marine Highway's dependence upon legislative support for its mission. Even if the funding scheme for land sales were wildly successful, approval by the legislature would still be required for the annual [indisc.] and for most of the remaining functions now performed with legislative authorization. Its employee organizations would bargain collectively with a board of directors, but the outcome would still require ratification by the legislature. It is not apparent to us how the Marine Highway System would benefit from an isolation of the executive functions while preserving intact its current relationship with the legislature. In summary, Mr. Chairman, we believe that the relocation of the Marine Highway under a Marine Highway Authority would degrade rather than improve the marine highway needs of Alaskans. It will not improve [indisc.] nor improve the system's ability to attract and retain the competent and dependable employees it requires. Further, it will weaken the Marine Highway's ability to compete with federal funding and create tensions among transportation objectives, which do not now exist. Thank you for your attention and I'll be happy to address any questions the committee may have. CHAIRMAN COWDERY asked if this bill passes, whether the resources it generates will go to the Marine Highway System. MR. DOLL replied that he thought that was the intention. CHAIRMAN COWDERY asked him if the Marine Highway System is healthy enough that it does not need any new sources of dollars. MR. DOLL replied, "We've always had a requirement to appear before the legislature for public funding, yes." CHAIRMAN COWDERY asked whether he would he support the bill if the Marine Highway System was removed from the executive budget. MR. DOLL replied that he would have to examine the outcome as he wasn't sure of all of the implications. SENATOR ELTON said he was interested in Mr. Doll's comments about the sale of land being inadequate to sustain the operations of the Marine Highway System. He said he didn't see anything in the bill that addresses the sale of land other than giving the Authority the ability to turn land back to the Department of Natural Resources for sale with the proceeds of the sale going to the original land owner, not to the Authority. He asked Mr. Doll or the sponsor to point out the provision that allows the sale of land to generate funds for the Authority. MR. DOLL replied that he was relying on AS 37.14.570 on page 20. He thought that was what that fund was intended to do. SENATOR WARD said that is correct; that is the intention. SENATOR ELTON said the section that provides for the Acquisition and Management of Property on page 6, line 15, of Version C gives the Authority the ability to purchase property in AS 19.55.230 when it addresses the disposal of land or rights in land. It says: The Authority may vacate land or rights in land acquired for the Alaska Marine Highway System by executing and filing a deed in the appropriate recording district. Upon vacating, title reverts to the person's heirs, successors or assigns in whom it was vested at the time of the taking. The Authority may also transfer land not considered necessary for the use by the Alaska Marine Highway System to the Department of Natural Resources for disposal with the proceeds of disposal credited to the funds from which the purchase of the land was originally made. He thought that meant that if they dispose of land, they don't have access to the proceeds from the disposal of it. SENATOR WARD responded: If they give the land to the Department of Natural Resources to sell it, it's credited to the funds from which the purchase of land was originally made that would revert back to the original fund that is within the Authority's jurisdiction to spend. That is the way the drafter said to do this. That's the procedure that you actually go through in order to get the proceeds back into the fund that the Authority has the authority over to extend. That absolutely was the intent. The intent was to give a half million acres to this Authority and for them sell it, lease it, barter it, exchange it, chop trees down on it, pave over it, do whatever they want, but to start deriving some kind of income off of the half million acres. SENATOR ELTON asked Mr. Doll what the relationship is now between the Marine Highway System and the national highway system and whether the state could be in danger of severing that relationship by the establishment of an authority. MR. DOLL replied: Each state highway agency, the Department of Transportation in our case, is the federally statutorily required channel through which federal transportation funds flow. The only exception is where there may be a local municipal transportation authority of which Anchorage is the only example in Alaska. That relationship would not be disturbed, but the bill attempts to assert the interests of the Marine Highway by making very specific the Authority's participation in the Department's planning process, which of course, also includes programming funds. Thus far that system has worked quite well, in my view. The Department, I think has been generous with regard to federal highway funds and maintaining particularly in recent years when we've had to go to a great deal of effort to keep the ships regulatorily compliant. A lot of money has gone into that process. If the Authority is set up as a separate agency within the state, and if the department has no interest or concern for its operation, I'm apprehensive that in some future relationship the interests of the Department and the Marine Highway will be reflected in a degree to which it supports the division of those federal funds throughout the state. And, of course, there's always competition for those funds. Now the department has an interest in how the Marine Highway operates. If we separate that, I honestly can't forecast what that would produce. I know that the competition for highway, bridge and tunnel construction is real and the requirements throughout Alaska. What it would be in the future is really difficult to forecast. SENATOR WARD asked Mr. Doll if his concern is that this bill may cause a reduction in federal contributions and support because of the separation. He said that is the opposite of what he thinks would happen. He thinks it would be very good for the Marine Highway System to be an entity of its own and to be able to compete in that process. For the last five years it has appeared to him that the Marine Highway System needs a better standing within DOTPF's discussion of priorities. MR. DOLL replied: My concept of how things are working at the moment are that when I come to the commissioner with a requirement for a federal project and when we study them within the total DOT context, we represent those as transportation projects for which the Department is responsible. The Department has an interest in how well the Marine Highway operates… Every one of those incentives to provide adequate funding for the Marine Highway is present and we take advantage of that. If we change the circumstances so that the Department is no longer responsible for the Marine Highway's operation, I'm not sure how powerful my arguments would be and I'm not sure how powerful the arguments of the Authority would be given the fact that the Department is no longer responsible for its operation. SENATOR WARD said just for the record, most of the language for the Authority in the bill was completely gleaned out of Senator Taylor's bill. SENATOR TAYLOR asked Mr. Doll to characterize the financial success of the Railroad and the Marine Highway over the last 10 years. He asked Mr. Doll why the Railroad has been successful and the Marine Highway has been an "abject failure." MR. DOLL said he wasn't qualified to comment on the Railroad's success, but its reputation is very good, but it also has a great many assets that it capitalizes on - not the least of which are all the cruise ship docks that it utilizes. There is no comparable real estate asset available to the Marine Highway System. SENATOR TAYLOR asked him if he knew what the railroad's primary assets are from which its profits come. MR. DOLL replied that he had no idea. SENATOR TAYLOR said it is all land. He said the Senate just passed a bill extending some of the railroad's leases from 35 years to 55 years, because the people who lease land from them want to lease it for a longer period. MR. DOLL replied: You're well aware that land alongside a railroad has inherent value. There is no comparable land available to anybody else in Alaska. The Railroad is capitalizing on the fact that its land lies along a communications link that links community centers, population centers as well as being available to the transportation link itself. There is no comparable land available to us. I don't know, and I'm not prepared to suggest to the committee that I know how much revenue this proposal would generate. I have no way of estimating that and I've not seen any estimates of it. I'm only suggesting that the concept that some substitute for legislative funding can be found to operate the Marine Highway is, I think, speculation and I would not like to see a situation develop where the legislature believes it has a substitute for GF funding for the Marine Highway and in fact that does not exist. I would like to have the continued legislative support that we've had in the past and I don't think a substitute exists for that in the potential for sale of raw land throughout Alaska. SENATOR ELTON asked, regarding the original question regarding the federal funding, if the AMHS has an ability to work with an authority or is its ability in distributing federal funds limited to working with the Department of Transportation or an organization such as AMATS. MR. DOLL replied that the federal statutory requirement is that they operate through the state highway agency. They would not be able to deal directly with the Marine Highway Authority. SENATOR ELTON said he remembered discussions about the railroad and that its profit center is the leases that it has for fiber optics. He said one way he would view this bill more favorably is to allow the lease for the submarine fiber optic cable to revert to the Marine Highway Authority. Then they would have taken an initial step toward financial viability for the Marine Highway System. CHAIRMAN COWDERY said he didn't agree that their profit is the fiber optics lease. In his town, the whole Ship Creek basin is owned by the railroad and they lease land. He thought the railroad's biggest revenue source is the real estate it owns. SENATOR WARD said when the Railroad was originally transferred to the State from the federal government, land for tracks and close to the tracks was transferred along it. An additional 47,000 acres that was transferred was not near the Railroad; it owned the land to supplement its operation. The location of the 500,000 acres given to the Authority will not make any difference. The Authority could do whatever it wanted to do with its land. The Railroad's land is the reason it is making a profit this year. SENATOR TAYLOR asked Mr. Doll what the AMHS would do if it doesn't do this. He thought the AMHS is in desperate condition now. MR. DOLL replied: I don't believe there is any substitute for dollars to operate a ferry system and I believe that administrative restructuring is going to get us where we need to go. The Department is working diligently and successfully to reduce the cost of operating the Marine Highway System and I think at the same time improve the service to riders. I also believe that there is no substitute for money to keep the system going. I'm not a fiscal expert, but I recognize that support for the Marine Highway in terms of funding has certainly been declining and the situation that the Senator describes is doubtlessly true. The Department will continue to work hard to reduce the cost of operating the system and improve their service to its passengers and I think the remaining issues are exactly what we're talking about here. SENATOR TAYLOR asked if land isn't a stable way for the AMHS to acquire an income stream, what Mr. Doll would suggest to them as policy makers to set up to provide the AMHS with the type of stable income stream it needs. MR. DOLL replied that there were various proposals for raising money and he wasn't qualified to comment on them. He would have no way of knowing if it's likely that substantial funds would come from the proposed projects. He thought the AMHS will still need the support of the legislature to get the kind of funding it needs. SENATOR TAYLOR asked Mr. Doll if he read anything in the bill that said the legislature would not still have an obligation to support the AMHS until this proposal was running. MR. DOLL replied that he didn't have any anticipation of that. He wouldn't want anyone to conclude that because the land was made available and if it didn't bring in the funds that were needed that the legislature had washed its hands of that concern. That would be an unfortunate outcome. SENATOR TAYLOR said they had never done that with the University, the Railroad or the Mental Health Trust lands. Over the years, there has been no indication that that would happen. SENATOR WARD added that he talked to former Senator Lloyd Jones who is now affiliated with the Transportation Committee under Congressman Don Young and both of them have assured him that this process is not only something that is being done in some places, but it's a completely appropriate one and wouldn't affect federal funding. TAPE 02-19, SIDE B    MR. LAUREN GEHRHART, Executive Director, Southeast Conference, said they were formed in 1958 to promote the formation of the Alaska Marine Highway System. He said they recently became aware of the changes in the bill and are concerned that caution is taken with how the Authority would be formed. They want an opportunity to talk with the sponsors about it. No one knows what kind of a revenue stream could be anticipated out of 500,000-acre land grant. He also thought that other efficiencies could still be explored. He told the committee that the Southeast Conference had been tracking these issues closely over the last few years and decided recently it should attempt to perform its own study of the problems and potential solutions. The Conference has obtained grant money and is engaged in a study process right now to identify all different kinds of ferry operations around the world, primarily in the U.S. They want to learn from other people's experiences what might adopt best to this region. They expect to have preliminary findings by the middle of next month and hope to provide the next legislature and governor with a detailed analysis and recommendations. SENATOR WARD asked him how long his organization has been in existence. MR. GEHRHART replied that it was founded in 1958 in Petersburg by civic leaders who saw a need for a marine highway. SENATOR WARD asked if the Southeast Conference supported the marine highway authority bills sponsored by former Senator Lloyd Jones or Senator Robin Taylor. MR. GEHRHART replied that he didn't know for certain if those bills were supported by the Conference. They have paid a lot of attention to the problems it has experienced over the last 16 years. He stated, "The way the system was designed in 1962 seemed to work just fine then. Obviously, our needs have changed, situations have changed, funding is different. So we need to address that." SENATOR WARD said he was not familiar with the Southeast Conference and he didn't ride the Marine System any more than he had to, but he said this is the same authority bill as the other two. He thought there was a philosophical difference about whether the AMHS should remain a line item agency or become an Authority with 500,000 acres in addition to other revenue streams. He asked Mr. Gerhardt if he saw a bright future for the Marine Highway System the way it is now. MR. GERHARDT replied: I think our organization is on record supporting the Marine Highway System, because it is our highway system. The issue about this particular piece of legislation - I know there are some changes in what's shown here as the organizational structure and that's very important to us. I know that there were issues in the prior bills just how this body is constituted and what their authority is. The new wrinkle that you have here obviously is the land grant, which I think is innovative thinking. I'm glad to see people trying to solve the issue of the recurring budget problems the system faces. To answer your question about the future of the Marine Highway System, yes we have concerns. We know that it's a struggle every year to get adequate funding to operate the system and we know that there are efficiencies that can be realized by some changes perhaps. We are very concerned though, that we would make sure what we would come up with here would truly fix the system and doesn't end up spinning it off into the nether world. SENATOR WARD asked if he was opposed to the Marine Highway System becoming an authority if it could be set up in a manner he is comfortable with. MR. GEHRHART replied that they are not opposed to anything that will address their problems. In their study, they are attempting to determine whether an authority or some other structure would better address them. SENATOR WARD asked what other structures he had come up with. MR. GEHRHART replied that the study is ongoing. SENATOR WARD said he had been studying this for five years. People had been taking money out of the fund and now it is gone. He maintained, "This might not be the right answer, but nobody else has come up with one including your group that is now going to study it a little more…" SENATOR ELTON said he wanted to put the sponsor more at ease on this and said: The Southeast Conference has done an absolutely incredible job in bringing all of the communities together in Southeast Alaska on issues as diverse as the Southeast Regional Transportation Plan, education, fishing issues, a lot of the economic issues that drive this. And I can assure the members of this committee…about the integrity and the work ethic of the Southeast Conference. I don't think that their purpose in reviewing the system that we have now and other models that could be applied to the Marine Highway System is simply an effort to produce another report, because this is an organization that is results oriented and I've got an awful lot of comfort in the notion that whatever they propose is going to be taken seriously be people who depend on this transportation system. SENATOR ELTON asked Ms. Carroll if land that was available for the trust was open to public selection and, if so, what amount of interest has been expressed by the public in lands that have sufficient value to enhance the Marine Highway. MS. CAROL CARROLL, Department of Natural Resources (DNR), replied that all of the land that the state owns has been classified and what is classified as available for different purposes is certainly available for people to come to the state and say they would like to lease it or hold a timber sale. SENATOR ELTON asked what kind of public interest DNR gets from people who want access to those lands. He asked if the Authority controlled those lands, would there be a higher public interest in the use of them than with DNR. MS. CARROLL said as she understands it, if there is a good prospect for something, that activity would be taking place right now. SENATOR TAYLOR asked what the average price per acre was for land that had been sold by the State of Alaska since statehood. MR. BOB LOEFFLER, Director, Division of Mining, Lands, and Water, replied a rough estimate is $750 and a lot of that land is extremely remote. SENATOR TAYLOR said that goes all the way back to when lands were sold at a 50% discount etc. MR. LOEFFLER said he didn't believe that was correct, but that figure included lands sold since 1980. He offered to get the committee better information. SENATOR TAYLOR asked if DNR just had a land sale on Prince of Wales and what the price per acre was. MR. LOEFFLER said he would have to look up that information. SENATOR TAYLOR said he thought the lots were 2.5 to 3 acres and some sold for over $40,000, about $15,000 per acre. He said using an average of $10,000 per acre times 500,000 acres equals $5 billion. He remarked, "That probably wouldn't be enough the way our current ferry system is operating. I think they could run that stuff down a rat hole and still be trying to sell ferries two years later…" He asked Mr. Loeffler to explain the difference in management style between the lands DNR managed for over 30 years for the University of Alaska and the $1.5 million made off of it and the over $45 million the University has made off exactly the same land using its management style in about the last nine years since they took it over. MR. DICK MYLIUS, Resource Assessment and Development Manager, DNR, explained that the University had a windfall and that was revenue that was almost entirely from state lands, not University lands. SENATOR TAYLOR noted that that timber was cut off of state land, which is the same land Senator Ward is talking about in this bill. The land was turned over to the University and they chose to harvest the timber and make money off of it. MR. MYLIUS responded that they had very extensive harvests in that area before, during and after that sale, but it's not under his division. SENATOR WARD moved to pass CSSB 271(TRA), Version C, from committee with individual recommendations. SENATOR ELTON objected and said that he wasn't arguing that the problems facing the Marine Highway System and all of our transportation systems are not significant, however: It's a lack of money to do the maintenance, which means that we don't do deferred maintenance, which means that we're doing the most expensive maintenance of all. It's not a problem that's unique to the Marine Highway System and I guess that when people say, 'If not this, what?' my suggestion is that we spend the money we need to do to maintain our transportation infrastructure. We're not doing it with harbors, we're not doing it with ports, we're not doing it with the Marine Highway System, we're not doing it with our roads and highways. So the problem faced by the Marine Highway System is not unique. I guess the only other thing that I would say is that after an hour of testimony, we've come up with a different way of managing our Marine Highway System and I'm much more comfortable with the approach that's being adopted by the Southeast Conference. I guess the last thing that I want to say is I think I've heard some comments here that cast aspersions on to the managers that may even suggest that the present managers of the Marine Highway System are perfectly capable of tossing away $1 billion and I find that suggestion offensive and I don't think it's true and I think that if that's the basis upon which this bill is going to move forward, it's the wrong reason for this bill to move forward. SENATOR WARD said he thought this was a good bill and he wouldn't care if all the people that currently run the Marine Highway System were appointed by the governor to run the new authority. He didn't think that was the point. He noted: The point is we need to separate the Marine Highway Authority away from the current position that it is as a line item agency and we need to give it a half million acres and more for a land base and other things… SENATOR WARD called for a roll call vote on his motion to move CSSB 271(TRA) from committee. SENATORS WARD, TAYLOR, WILKEN, and COWDERY voted in favor; SENATOR ELTON voted against. SENATOR ELTON moved for reconsideration. SENATOR WARD noted that the committee would have to rescind its action.