GENERAL SUBJECT(S): OVERVIEWS: Alaska Aerospace Development Corporation Alaska Science and Technology Foundation     The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 21st Legislative Session, contact 465-2156. After the 21st Legislative Session they will be available through the Legislative Library at 465- 3808.   Time Meeting Convened at 1:39 p.m. Tape HFC 99-29, Side 1 and 2  Tape HFC 99-30, Side 1     X Representative G. Davis  PRESENT:  X Co-Chair Therriault X Representative Foster  X Co-Chair Mulder Absent Representative Grussendorf  X Representative Austerman X Representative Kohring  X Representative Bunde Absent Representative Moses  X Representative J. Davies Absent Representative Williams  ALSO PRESENT:  PAT LADNER, EXECUTIVE DIRECTOR, ALASKA AEROSPACE DEVELOPMENT CORPORATION, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT; JAMES KENWORTH, PHD, EXECUTIVE DIRECTOR, ALASKA SCIENCE AND TECHNOLOGY FOUNDATION; LEIF SELKREGG, RISE ALASKA; GEORGE KING, HUDSON IAPF, PROJECT MANAGER, RISE ALASKA; LAURA GOULD, DIRECTOR OF OPERATIONS, ALASKA AEROSPACE DEVELOPMENT CORPORATION; LARRY PRICE, LOCKHEED MARTIN; MICHAEL MACHULSKY, CHAIRMAN, BOARD OF DIRECTORS, ALASKA AEROSPACE DEVELOPMENT CORPORATION; LARRY PRICE, DIRECTOR, SMALL LAUNCH PROGRAMS, LOCKHEED MARTIN CORPORATION.  LOG SPEAKER DISCUSSION  OOO HFC 99-29, SIDE 1 ALASKA AEROSPACE DEVELOPMENT CORPORATION   Co-Chair Mulder Convened the Committee at 1:39 p.m.  MICHAEL MACHULSKY, Provided members with backup material. CHAIRMAN, BOARD OF Attachment 1, Athena System Launch, DIRECTORS, ALASKA Lockheed Martin (copy on file). AEROSPACE Attachment 2, Economic Effect of the DEVELOPMENT November 1998 Launch on the Kodiak Island CORPORATION Borough and on the state of Alaska (copy on file). Attachment 3, 1999 Business Plan, Alaska Aerospace Development Corporation (copy on file).  183 Mr. Machulsky Gave a brief overview of the history of the Alaska Aerospace Development Corporation (AADC). Noted that recent legislation increased the Board of Directors by four members. Listed Board  members (contained on page 3 of Attachment 3.)  332 Mr. Machulsky Funding for the Kodiak Launch Complex was received last year. First launch facility on private property in U.S.  393 Mr. Machulsky Pointed out that the Kodiak Launch Complex is about creating the infrastructure in the state for a new industry. Road and communications improvements are the result of the project. Additional federal funding is coming into the state as the result. There has been a positive affect on education in the state.  546 Mr. Machulsky Discussed Alaska Aerospace Development Corporation's (AADC) business plan. Observed that projections are conservative.  590 PAT LADNER, Noted that AADC is statewide. Emphasized EXECUTIVE that there are several ground stations in DIRECTOR, ALASKA addition to the launch facilities. AEROSPACE Stressed the use of data collected by DEVELOPMENT remote sensing. The Department of Natural CORPORATION, Resources can use the data to track DEPARTMENT OF erosion and beetle infestations. COMMERCE AND Municipalities can use the data to assess ECONOMIC growth. Data can also be used for GSI DEVELOPMENT mapping.  780 Mr. Ladner Discussed the Challenge and Learning Center in Kenai.  840 Mr. Ladner Discussed the Kodiak Launch Complex. Noted that money was brought into the state from the launch. Emphasized that value added industry will result from the presence of the Lockheed Martin Corporation.  907 Mr. Ladner Stressed that it is time to transition from construction to marketing. Discussed launches that will occur in the next few years.  979 LAURA GOULD, Discussed the Kodiak Launch Complex's DIRECTOR OF budget. She emphasized that it is critical OPERATIONS, ALASKA to finish the complex to solidify their AEROSPACE contracts. Alaska Aerospace Development DEVELOPMENT Corporation has a 40 million-dollar CORPORATION budget. They were successful in using $5 million dollars from an Alaska Science and Technology Foundation (ASTF) grant to get $30 million dollars in federal funds. They still need a $5 million dollar, non- general fund, and capital appropriation. Discussed other funding possibilities. They are working with the Alaska Science and Technology Foundation. The Alaska Industrial Development and Export  Authority (AIDEA) reviewed their finance plan and concluded that their assumptions were correct.  1119 Ms. Gould Noted that ASTF indicated that they would accept a grant application for the last $5 million dollars.  1157 Ms. Gould The economic impact from the first launch at the Kodiak Launch Complex was $1.3 million dollars in sales. They expect that there will be a greater impact from future launches. The first launch was small and did not have a satellite.  1210 LARRY PRICE, Talked about the launch vehicle and where DIRECTOR, SMALL Alaska stands as a launch site.  LAUNCH PROGRAMS, LOCKHEED MARTIN CORPORATION 1240 Mr. Price Reviewed Attachment 1. One third to two- thirds of the missions are at high inclination site. Plans to fly a mission for NASA in August. The Kodiak Launch Complex is a high inclination launch site.  1327 Mr. Price Reviewed page 3, Attachment 1. Noted that there is a significant amount of money invested in the Athena program. Kodiak is a natural site to follow Florida  1361 Mr. Price Discussed page 4. Their program is in Space and Strategic missiles, Electronics area of the Lockheed Martin Corporation.  1394 Mr. Price Discussed page 5, Athena Overview. The Athena Launch Program was designed to fly up to 12 vehicles. There are 4 launches on the current manifest. There are plans to construct an Athena III. Pointed out that there is growth potential at Kodiak Launch Complex.  1481 Mr. Price Discussed page 6, Athena Flight Successes. Discussed success of Athena flights. 80 meters per second velocity, highly successful. Only used two of three burns. They had propellant to spare. Discussed the Lunar Prospector. Noted that it was highly successful.  1537 Mr. Price Discussed ROCSAT-1. It was built for the Taiwanese government. It was also highly successful. Anticipate other missions that would fly from the Kodiak Launch Complex.  1661 Mr. Ladner Discussed page 7, Launch Sites. Reviewed other launch sites. Noted benefits of Kodiak. There is a commercial facility and commercial pad in Kodiak. Stressed that they are comfortable with schedule of construction and costs.  1744 Mr. Price Stated that there have been a number of studies as to the size of the market. Observed that it is hard to assess because it is an emerging market. Market surveys indicate that there will be as many as 800 missions over next 10 years. They estimate that there will be 200 in the next year. Their business plan estimates that they will have 80 missions over the next 10 years. Anticipates 2-8 high inclination missions. Launch vehicle is ready and launch site supports the schedule. They are working with NASA.  1892 Mr. Price The market is changing to smaller companies, not all government missions. Last year was the first year where there were more commercial then government launches. Observed that government launches are fully funded. Commercial launches can be fully or partially funded. The are working on capability to enhance desirability of Kodiak Launch Complex.  1955 Representative G. Asked the extent of competition.  Davis 1978 Mr. Price There are other facilities. Discussed competition. There are two pads in Russia. Others do not have missiles of the same class.  2006 Representative G. Questioned the importance of the Kodiak Davis Launch Complex.  2017 Mr. Price Noted that there is good coverage at high latitudes. Launches from Florida do not get as far north or only reach northern latitudes after many cycles. Kodiak Launch Discussed advantages of the Kodiak Launch nd Complex. It has a clear ocean to drop 2 rd and 3 stage segments.  2076 Co-Chair Mulder Pointed out that high inclination launches can service the entire United States.  2105 Mr. Price Discussed high inclination north to south launches.  2128 Mr. Price In response to a question by Representative Bunde, explained that they need a 50-mile down range to drop stages. Aircraft need to keep clear.  2157 Mr. Price Noted that there is a lot of marine traffic in Florida. They usually launch at night.  2175 GEORGE KING, (Rise Alaska provides project management HUDSON IAPF, RISE at the Kodiak Launch Complex. Their ALASKA contract extends to December 1999.) Discussed status of work in progress to take maximum advantage of market. Pointed  out that financing has become an issue as the market has split from noncommercial (government) to commercial launches. Discussed how they are trying to position AADC to be competitive in the market.  2260 Mr. King Discussed efforts to secure bonding through AADC bond authorization revenue bonds. They are creating letter of credit revenue bonds to allow financing for commercial launches. This would eliminate risk to the state of Alaska. Pointed out that there is no general fund money involved. Bonds are not related to infrastructure, but to launches.  2322 Mr. King Noted that they are working with the Lockheed Martin Corporation to use the Kodiak Launch Complex as their launch site. Alternative financing will make the Kodiak Launch Complex more attractive.  2348 Mr. King The have identified a portion of the federal tax code that prevents tax exempt financing. He noted that this section could be changed.  000 HFC 99-29, SIDE 2 TAPE CHANGE  078 Co-Chair Mulder Asked the number of firms that might be interested in taking advantage of a financing package.  0136 Mr. Price Stated that there are about five a year that are high inclination candidates. He estimated that a revenue package could enhance their competitive position on 14 of launches over the next three years.  160 Co-Chair Mulder Pointed out that the state is not at financial risk.  180 Mr. King Emphasized that the state is insulated from risk because it is a letter of credit.  212 Co-Chair Clarified that financing is an inducement Therriault to business in Alaska  248 Mr. Price Noted that high inclinations launches and financing separates Kodiak from Russia  303 Mr. King Satellite companies are coming out with short timeframes when they put out bid requests. Satellite companies are customers of AADC and the Kodiak Launch Complex. Foreign launch sites are their greatest competition because of subsidizes by foreign governments.  426 Co-Chair Noted that a vehicle is necessary to Therriault deliver the product to space. Pointed out that the Lockheed Martin Corporation has made an investment in the Kodiak Launch Complex.  496 Representative J. Asked how stiff is the competition and how Davies important is the change in the tax code?  520 Mr. King Stressed that the tax code change is very important. Tax exempt financing rates are the lowest available. Would have the lowest cost of funds that is not subsidized.  573 Co-Chair Mulder Asked how realistic is it that the change could occur.  598 Mr. King Emphasized that the tax change is realistic overtime, but he could not anticipate when it would occur.  643 Ms. Gould Stressed that they have been effective at working with the Congressional delegation. Stressed that the Legislature can send a message to the Congressional delegation.  656 Co-Chair Mulder He asked who would be against allowing the extension of tax exemption.  Mr. King Observed that the IRS is cautious about requests for tax exemption. Stated that they need to make case that spaceports constitute a compelling state interest.  724 Co-Chair Mulder Pointed out that there is a strong argument that it would allow an opportunity to retain business in the United States. Stressed that they are competing internationally.  740 Representative J. Are there other companies looking at the Davies Kodiak Launch Complex.  756 Ms. Gould Stated that there are opportunities to work with the military and other foreign vehicles. They are working on a long term marketing plan  812 Representative Stated that he needed more information on Bunde bonding. Questioned if there would be a risk to the state.  848 Mr. King Pointed out that a letter of credit is not at risk for the state. The borrower has a relationship with the bank. They negotiate allocation of risk between them. The bank makes payments on behalf of the borrower. The bonds are issued by the state. Discussed the importance of alternative financing to capturing the market.  991 Mr. King Acknowledged that there are risks to the state. The risk would be if the borrower and the bank both failed. Stressed that they will work with the Department of Revenue and the legislature to look at banks.  1001 Representative Noted that the risk to state is minimal.  Bunde 1026 Mr. King Agreed that the risk is not zero.  1047 Co-Chair Asked if the Legislature should create a Therriault resolution supporting the change in the tax code.  1071 Ms. Gould Noted that a resolution by the Legislature would be very beneficial.  1120 Representative Noted that the first Kodiak launch was not Austerman a problem with local fishermen. What is the normal pay back on bonds?  1165 Mr. King Clarified that bonds are rarely extended beyond useful life of the satellite. The payoff would be within the life of the satellites.  1199 Mr. Price Normal payoff would be between 3 and 10 years. Most would be between 5 and 7 years. May be as short as a year or six months.  1227 Representative G. Noted that IRS code changes are mechanisms Davis to reduce cost.  1253 Mr. Price Discussed competition with foreign markets.  1301 Co-Chair Mulder Asked what the state charges.  1311 Ms. Gould Stated that the information is confidential. Observed that AIDEA thinks that AADC over estimated their costs.  1360 Mr. Price Pointed out that the lower the cost the lower the total package.  1404 Representative Maintained that if they build it and the Bunde market will come.  1428 Mr. Price Stressed that there is still a risk. Emphasized that there are challenges in capturing the market.  1614 Mr. Price Noted that the Kodiak Launch Complex is tailored to the needs of the vehicles that will be launching there  ALASKA SCIENCE AND TECHNOLOGY FOUNDATION  1643 JAMES KENWORTH, Provided members with Attachment 4 PHD, EXECUTIVE (Attachment 4). Pointed out that need to DIRECTOR, ALASKA expand or replace exports. Only agency SCIENCE AND with science and technology focus to grow TECHNOLOGY economy uses incentives to get industry to FOUNDATION take a longer-term view and take more risk.  1723 Mr. Kenworth Discussed the challenges facing the state and the Alaska Science and Technology Foundation. Need to enlarge and diversify goods.  Mr. Kenworth Discussed I, Attachment 4. Salmon based final products accounted for $7.3 million dollars in sales. Discussed grants for surimi process and salmon pin bone removal. There is a $70 thousand dollars dollar grant for a Katchemak Bay oyster seed project.  1809 Mr. Kenworth Discussed II of Attachment 4, Replace Imports.  1869 Mr. Kenworth Discussed the Petro Star Desulfurization Project.  1901 Mr. Kenworth Discussed III of Attachment 4, Science for Alaska Benefit. Noted that there is a project to test for total dissolved solids (TDS). Working on two-year project to determine TDS levels.  1940 Mr. Kenworth Discussed remote sensing to integrate radar data. Stressed that it could provide better information to the mining industry.  1966 Mr. Kenworth Discussed the seismology project to produce micro zone maps in Anchorage. The maps can be used to determine if areas are over or under built.  1997 Mr. Kenworth Discussed IV, Technology Infrastructure for Growth. Noted the importance of early risk capital for infrastructure growth. Added $1.4 million in equity in 1998. The Alaska Science and Technology Foundation is now capitalized at $7 million dollars.  2057 Mr. Kenworth Discussed the creation of InvestNet. It is an investor network where entrepreneurs and investors can come together and investment plans created.  2071 Mr. Kenworth Observed that ASTF is funding K-12 internet projects. Uses volunteer labor. Schools are being wired for $10 thousand dollars per school.  2097 Mr. Kenworth ASTF is funding the placement of science resources on the internet. Noted that Alaskan students will have access to the Sealife Center and other museums through the web.  2114 Mr. Kenworth Summarized that ASTF funded 111 projects, costing $13.6 million dollars. Projects resulted in an additional $65 million dollars in matching money. This included $5 million dollars for the Kodiak Launch Complex. Noted that there are $4 million dollars for the University of Alaska Fairbanks coal project.  2162 Mr. Kenworth Observed that the percentage of ASTF's total expenditures that is put into operations has declined from 32 percent to 8 percent.  2178 Mr. Kenworth Explained that their total earnings would not be known until the end of year.  2243 Mr. Kenworth Discussed performance measures. Discussed a 1999 McDowell survey on performance measures. Observed that performance measures were previously on a per project  bases. They are now looking at overall performance measures such as job sales. Observed the survey found that 130 jobs were a direct result of ASTF programs. Noted that 84 percent of the grantees would not have entered into projects without ASTF assistance. Added that 36 percent would not be in business.  2269 Mr. Kenworth Observed that they need better measures for knowledge projects.  2280 Mr. Kenworth Spoke in support of continuing the work of ASTF.  2298 Representative G. Observed that ASTF is making effort to Davis improve conditions in rural Alaska. Questioned how effective they have been in rural Alaska.  2322 Mr. Kenworth Discussed wastewater disposal in rural Alaska. Discussed Review Board with Department of Environmental Conservation and Public Health.  000 HFC 99-30, SIDE 1 TAPE CHANGE  036 Mr. Kenworth Discussed efforts to improve rural Alaska through rural power projects.  165 Representative Complaints that ASTF is placing money in Bunde failing projects. Asked what is being done to assure repayment.  201 Mr. Kenworth Stressed that 5 percent of the gross goes back to the endowment. Noted that they send annual surveys to grantees.  302 Representative Asked if other states have similar Bunde programs.  344 Mr. Kenworth Stated that 48 other states have similar programs. Noted that a few are inactive. Most were started in early 80's.  370 Co-Chair Asked if there is a mechanism for deposing Therriault equipment.  399 Mr. Kenworth Explained that ASTF deposes equipment when the Board receives a report from staff. Most of the time the equipment goes back to the grantee.  474 Representative Asked if other states finance science and Kohring technology.  531 Mr. Kenworth Noted that some states have science and technology commissions, some encourage science and technology through their universities, and some have separate agencies that are concerned with science and technology issues. Discussed makeup of programs in other states. They are state government funded programs.  671 Representative Questioned the benefits of science and Kohring technology in terms of jobs and dollars generate.  714 Mr. Kenworth Stated that current impact of ASTF is documented on page 3 of Attachment 4. Stressed that the impact is good, but needs to keep growing.  820 Representative J. Expressed support for the Alaska Science Davies and Technology Foundation.  843 Representative G. Observed that the Kodiak Launch Complex is Davis requesting an additional $5 million dollars.  889 Mr. Kenworth Noted that the Board of ASTF received the AIDEA review in their last meeting. He noted that the Board would be glad to receive an application for the balance of funds. Discussed conditions and issues that would need to be worked out to make sure that this is the last piece of state money needed to for the capital program.  923 Co-Chair Discussed the creation of a letter to the Therriault Congressional delegation supporting a change in the tax code.  1010 Co-Chair Mulder ADJOURNMENT The meeting adjourned at 3:29 p.m.