HB 357-AK RAILROAD CORP. LAND SALES  CHAIR KOOKESH announced the consideration of HB 357. [CSHB 357(FIN) was before the committee.] 2:42:59 PM REPRESENTATIVE BILL STOLTZ, sponsor of HB 357, presented the bill speaking to the sponsor statement: To spur economic development throughout the state, House Bill 357 adds a fourth clause to the existing language governing how the Alaska Railroad Corporation (ARRC) may dispose of land. House Bill 357 will enable the railroad to sell land that is not needed for essential railroad purposes. This bill does not ask for any irresponsible disposal of land, as the sale must be initiated by the board of directors on two conditions. The first condition is that the land is not essential to railroad operations, and the second condition is that the sale is in the best interest of the state of Alaska. As support has shown, current leaseholders are very unhappy with the inability to purchase their leased properties from the railroad. In general real estate dealings, private purchases are made in mutually beneficial sales. House Bill 357 encourages these sales after determination by the board of directors of the railroad looks at each sale with the overall benefit to the state of Alaska as the key driver. Not only will the private sector benefit from this addition to state law, the railroad will also have increased ability to make decisions regarding their overall real estate portfolio. The sale and relationship of private and public lands are vital to the economic growth of the state of Alaska. I ask for your consideration and support of House Bill 357 to promote Alaskan growth through the diversification of land ownership, increasing the tax base of the state, and encouraging responsible development of Alaskan land. REPRESENTATIVE STOLTZE clarified that any leasehold sales would be permissive and considered on a case-by-case basis. 2:46:23 PM SENATOR PASKVAN joined the meeting. REPRESENTATIVE STOLTZE told the committee that ARRC Board Chair, John Binkley, has taken a leadership role in acknowledging that there have been problems in the way the railroad has dealt with communities and lessees. HB 357 would help to keep the conversation going, he said. In conclusion he restated that the bill is permissive and provides opportunities that don't currently exist. 2:49:34 PM SENATOR MENARD asked if the current leaseholders would receive priority if the railroad decided to sell its land. REPRESENTATIVE STOLTZE replied the bill specifies that current leaseholders would have first right of refusal, but it's a policy issue that is debatable. SENATOR MENARD said she is torn because, although the lessees have a stake, it makes good business sense for the land to go to the highest bidder. REPRESENTATIVE STOLTZE replied it's debatable, but he opted to protect leaseholder's time and money investments, some of which go back over 50 to 60 years. CHAIR KOOKESH asked if this simply adds a fourth option governing how the railroad may dispose of its land. REPRESENTATIVE STOLTZE confirmed that the bill was written to reflect that intent. 2:52:06 PM SENATOR PASKVAN said he understands that the bill was written to give current leaseholders the right to match the highest bid. REPRESENTATIVE STOLTZE responded that he believes it was written that way. SENATOR PASKVAN expressed concern about unduly delaying the transaction and asked if there would be a limit on the time the leaseholder would have to meet the high bid. REPRESENTATIVE STOLTZE said he believes that would be up to the railroad, but he believes ARRC would act in good faith. SENATOR PASKVAN said he tends to agree with the sponsor. It would be in ARRC's best economic interest to act in good faith in these transactions. 2:55:18 PM SENATOR MENARD asked if the railroad would argue for the status quo since it gets eight percent annual return from its leased land. REPRESENTATIVE STOLTZE clarified that the proceeds would stay with the railroad and he believes ARRC could make an eight percent return on its money. The agency is unencumbered and outside the Executive Act, and in some instances it should lower interest rates to help certain small communities. It's not always about making the most on every dollar, he said. SENATOR MENARD complemented Representative Stoltze for his due diligence. 2:58:15 PM SENATOR MEYER asked him to elaborate on what would happen to the proceeds from the sale of the land. REPRESENTATIVE STOLTZE said this legislation clarifies that the proceeds stay with the railroad and could only be spent in increments as interest accrues. SENATOR MEYER asked if he's heard that the passage of this bill could impact the railroad's bond rating. REPRESENTATIVE STOLTZE said he hasn't heard that and isn't sure how a permissive activity that may not happen could affect the rating. It begs the question of why some people are working so hard to kill the bill, he added. 3:01:09 PM CHAIR KOOKESH asked if this bill could force the railroad to sell land. REPRESENTATIVE STOLTZE said no; it's a gentle nudge. CHAIR KOOKESH observed that the railroad's concern seems to hinge on the language that says the money in the account may be appropriated. REPRESENTATIVE STOLTZE explained that an amendment in the House Transportation Committee substituted the word "use" for "appropriated" but legislative legal said that to comply with 45 U.S.C. 1207(a)(5)Alaska Railroad Transfer Act of 1982), "appropriated" was the right language. CHAIR KOOKESH asked for clarification that the language was changed on the advice of legislative legal counsel; there was no intention to do harm. REPRESENTATIVE STOLTZE said that's correct. 3:03:12 PM WENDY LINDSKOOG, Vice President of Corporate Affairs, Alaska Railroad Corporation, thanked the sponsor for introducing HB 357 and bringing to light some of the frustrations that leaseholders have had with ARRC. She assured the committee that ARRC is discussing ways to address those concerns and is working to improve customer relations with its leaseholders. Real estate revenues are the bread and butter of the railroad and a vital part of what has made ARRC a successful operating entity. The model that allows ARRC to lease land is excellent and worth protecting, she said. MS. LINDSKOOG said that it has never been the railroad's practice to sell land and there is concern that this bill will create an expectation that that practice may change. This may further frustrate customers, she said. Ms. Lindskoog referenced a letter to legislators from John Binkley articulating those concerns. She said she appreciates that Representative Stoltze clarified that his intent is not to mandate land sales because the board wouldn't necessarily take that path if this bill were to pass. MS. LINDSKOOG informed the committee that the concern that was raised by ARRC's bond counsel centered on the word "appropriate." She noted that Bill O'Leary, acting CEO and CFO, could answer questions in regard to that potential problem. In conclusion she said, "We do understand this doesn't require the railroad to sell land, it is permissive at this point." 3:07:59 PM CHAIR KOOKESH asked if she would greatly object if the committee passed the bill as currently drafted. There is no requirement; the bill simply provides the railroad a fourth option for disposing of land. MS. LINDSKOOG replied they could live with it because the bill is permissive and does not require action. SENATOR PASKVAN noted that the last sentence of the bill contains the word "appropriated" and a reference to federal law and asked if compliance to that federal law is compulsory for ARRC. MS. LINDSKOOG declined to answer a legal question and referenced a legal memo from the ARRC's general counsel that strongly recommended substituting another term for "appropriated" in the legislation. The terms "retained and managed" [and "used"] were suggested as viable alternatives. "Maybe it's just one of those instances where our legal team at the railroad has a little bit different take on the issue than the legislative legal team," she added. SENATOR PASKVAN pointed out that any language the state might use would be preempted if 45 U.S.C. 1207(a)(5)is compulsory on the railroad. 3:10:31 PM JEFFREY DAVIES, President, American Federation of Government Employees, Alaska Railroad Workers Local 183, said he represents 350 employees who are concerned about the effect that HB 357 might have on the railroad's ability to continue as a self- sufficient operation. In 2009 ARRC had to lay off many needed positions in response to rising operational costs and without real estate revenue to offset operational shortfalls the impact could have been greater, he said. The employees he represents believe these are necessary assets that continue to serve as intended. The model works; changing it could create uncertainty or lessen job stability and reduce the benefits that Alaskan jobs provide, he said. 3:13:07 PM JOHN COOK, Board of Directors, Alaska Railroad Corporation, said he has a background in real estate development. He thanked the sponsor for introducing the bill and said it's brought to light some communication problems that ARRC has with the leaseholders. He's new to the board and welcomes discussion, but he does have certain concerns about the unintended consequences of this bill. The first relates to the right of first refusal because it will have the overall affect of depressing market rates. The second concern is that developers would potentially lease pieces of property and then attempt to purchase and subdivide that property. That may be the property's highest and best use, but just that one person would garner the profit instead of all Alaska residents. He said he can also see situations where the lessee would ask to purchase the property under the right of first refusal and have a preexisting agreement to sell to the developer for a profit when the title vests. 3:16:56 PM PETER MACKSEY, Customer Relations, Steelfab, stated support for HB 357. He related that this family-owned business has been on the same ten-acre site for about 60 years. They pay taxes on the property, which would be tax free if the railroad didn't lease it. He noted that less than one percent of the land in Alaska is in private hands and he thinks that this is a chance to allow a viable business to expand. He expressed the view that the railroad seems to act like a state agency when it suits them and a private company when it doesn't. HB 357 doesn't push the railroad into selling its leasehold land, it offers the option. 3:19:57 PM CARL ANDERSON, Owner, Cook Inlet Tug and Barge, said the company has been in the family since 1938. He is concerned that the railroad is in the transportation business, but when times are tough it can apply for subsidies or stimulus funds or raise rates. These options aren't available to other transportation companies, he said. 3:21:28 PM MARK STEARNS, Alaskan Wood Molding, said he has been a leaseholder since 2001 and in that time his effective costs have increased from about $10,000 per year to $42,000 per year. Leaseholders have no recourse when the railroad decides to levy increases. HB 357 would provide some certainty and make it reasonable to make further investments in their buildings. Until recently his company was told that extending the lease wasn't possible, which hindered any desire to make improvements and the ability to get bank loans. He described the bill as a win-win for the railroad and its leaseholders. 3:25:01 PM REPRESENTATIVE STOLTZE reiterated that the bill is permissive. It's spurred by a desire to be responsive to the majority of Alaskans who aren't involved with the railroad. CHAIR KOOKESH closed public testimony and asked the will of the committee. SENATOR MENARD moved to report HB 357 from committee with individual recommendations and attached fiscal note(s). REPRESENTATIVE STOLTZE commented that it's puzzling that the railroad submitted an indeterminate fiscal note given that it isn't under the Executive Budget Act. The result is that it has a finance committee referral. 3:27:58 PM SENATOR MEYER objected to state that he too is puzzled by the fiscal note. He suggested that to avoid a finance referral the committee could zero out the indeterminate part of the fiscal note. CHAIR KOOKESH opposed the suggestion. SENATOR MEYER removed his objection. CHAIR KOOKESH announced that without further objection, CSHB 357(FIN) moved from the Senate Transportation Standing Committee.