HOUSE FINANCE COMMITTEE MARCH 10, 1999 1:35 P.M. TAPE HFC 99 - 44, Side 1 TAPE HFC 99 - 44, Side 2 CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 1:35 p.m. PRESENT Co-Chair Therriault Representative G. Davis Co-Chair Mulder Representative Foster Representative Austerman Representative Kohring Representative Bunde Representative Moses Representative J. Davies Representative Williams Representative Grussendorf absent from the meeting. ALSO PRESENT Dave Eberle, Department of Transportation and Public Facilities; Dennis Poshard, Legislative Liaison, Department of Transportation and Public Facilities; Kurt Parkan, Deputy Commissioner, Department of Transportation and Public Facilities; Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Robert Poe, Commissioner, Department of Administration; Deven Mitchel, Acting Debt Manager, Department of Revenue. TESTIFIED VIA THE TELECONFERENCE NETWORK Rob Stapleton, Journal of Commerce, Anchorage; Ron Simpson, Airport Division Manager, Federal Aviation Administration, Anchorage; Morton Plumb, Anchorage International Airport, Anchorage. SUMMARY HB 84 "An Act relating to international airports revenue bonds; and providing for an effective date." HB 84 was HELD in Committee for further consideration. HB 95 "An Act making and amending appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." HB 95 was HELD in Committee for further consideration. HOUSE BILL NO. 95 "An Act making and amending appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR presented the Committee with an update on the state FY99 cash flow situation. She observed that there is a three-day lag on the four-year historical average for cash in and cash disbursements. She stated that the state should be okay through March 25, 1999. The March 1, 1999 oil revenue update estimated that the state would need to draw $485 million dollars from the Constitutional Budget Reserve for FY99. The spring forecast will occur around April 1, 1999. She noted that the additional $200 million dollar draw authorized by the supplemental might not be sufficient to get through the end of the year. She observed that the final numbers could shift even after the Legislature adjourns. She recommended that the Constitutional Budget Reserve amount be sufficient to cover items that occur at the end of the fiscal year. Funds were identified in the order that they would be swept from General Fund sub-accounts, such as the Railbelt Energy Fund and the Municipal Matching Grant Fund. Co-Chair Mulder asked if $485 million dollars would cover the year. Ms. McConnell clarified that this amount is based on the March 1, 1999 update. She noted that the additional draw is due to lower production forecasts. The price update is slightly higher than forecasted. She emphasized that there needs to be room to maneuver in case prices drop in June. Representative J. Davies clarified that the interest earnings were included. Ms. McConnell explained that the vote covers both the principle and the interest. The projections of how much additional money is needed take into account the interest earnings on the Constitutional Budget Reserve. Ms. McConnell estimated that there would be another calculation in early May. The amount depends on timing of tax payments in and school district payments out. The spring forecast will occur in early April. HB 95 was HELD in Committee for further consideration. HOUSE BILL NO. 84 "An Act relating to international airports revenue bonds; and providing for an effective date." KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES testified in support of HB 84. He observed that the department is not requesting additional funds. He clarified that they are requesting an additional $25 million dollars in bonding authority for the airport redevelopment project. The authority would provide cash flow opportunities to meet the construction schedule on the airport redevelopment project. He gave a brief history of the project. He noted that the airport terminal project was presented to the airlines for a vote. The airlines voted to authorize up to $235 million dollars in bond authority. The Department of Transportation and Public Facilities set a price tag of $230 million dollars for the project. This is still the projected project cost. The department presented the Legislature with a request for $204 million dollars in bond authority. There would be finance charges in addition to the $204 million dollars, which would bring the total project cost to $230 million dollars. The department submitted an application to the Federal Aviation Administration (FAA) for a letter of intent (LOI). This is a request for federal discretionary dollars to help with the cost of the project. The Legislature reduced the request from $204 million dollars to $179 million dollars and directed the Department of Transportation and Public Facilities to seek the additional $25 million dollars through federal funds. The department was successful in receiving and additional $25 dollars in federal funding through a LOI with the FAA. The federal dollars will be received over a ten-year period. The department needs to have the money over the next four years to complete the project. The department also received funds for some other non-terminal related projects. The department is requesting bond authority to meet cash flow requirements. He explained that the LOI is a commitment of the federal government to appropriate the money over the next ten years. The money is needed to finish the project within four years. House Bill 84 would authorize the department to sell bonds to borrow money and allow the project to be done on time. The federal money would be used to pay back the bonds. In response to a question by Representative Austerman, Mr. Parkan explained that the total bond package includes existing bonds related to the airport parking structure. Representative Bunde asked if the increased debt service would result in cost overruns. Mr. Parkan responded that the original proposal included debt service. The amount would remain the same. Representative Bunde questioned if there were discussions between small and large airlines in regards to support of the project. Mr. Parkan felt that most of the small carriers were in support of the project. Representative Bunde asked what areas are increasing in costs and what will be scaled back to prevent cost overruns. Mr. Parkan emphasized that the intent is to keep the project at the $230 million dollar price tag. Co-Chair Mulder observed that the supplemental bill (HB 100) was amended to add "north" to the south terminal repairs. Mr. Parkan explained that the department received approval from the airlines and authorization from the Legislature for some work on the south terminal. The work is being transferred to the north terminal. The intent of the Airline Affairs Executive Committee was to take it to the full Airlines Affairs Signatory Group for their consideration. The request to the Legislature would be subject to a vote by the airlines. If it is not approved the request would be withdrawn. MORTON PLUMB, ANCHORAGE INTERNATIONAL AIRPORT, ANCHORAGE explained that the work would change the scope from the south to the north. He recalled that a jet gate was damaged in an accident. The repair would require them to dig up the apron. He explained that they would do other work that requires the apron to be dug up at the same time. The projects around the international terminal would be similar to the projects approved for the south terminal. Mr. Parkan explained, in response to a question by Co-Chair Therriault, that the north terminal is the international terminal. Representative Foster referred to a article in the "Passenger Terminal World, Annual Technology Showcase Issue 1999" (copy on file). He observed that the design features geological aspects of Alaska. He questioned if small carriers are being priced out of the building. Mr. Parkan stressed that the project costs have not increased since it was submitted to the airlines. The rates associated with the project were based on the original cost. Representative Foster asked if other businesses such as rental cars would be paying more for their space. Mr. Parkan stated that they would share in the project costs, but did not know the amount. Representative Williams recalled that the air carriers recommended that the project proceed slowly. Mr. Parkan clarified that the department is working with the carriers on the project's schedule. He noted that the schedule is fairly aggressive so that the traveling public is not disrupted for too long a time. Representative Williams recalled that the project was not entirely supported by the air carriers. Representative Foster observed that the airport is in an earthquake zone and asked if the project would be built to code. Mr. Parkan responded that everything would be built to code. He observed that while the architectural design reflects elements of Alaska, the project has been cost to stay within their budget. Representative Foster stated that he would like to hear from the airlines. Representative Austerman asked for more information regarding the fees. He observed that there has been discussion of an additional $3 dollar fee for travelers flying from Kodiak to Anchorage. Mr. Parkan responded that the terminal is divided into exclusive use and common use areas. Exclusive use areas are paid by the airline that uses them. The common use area is divided among all the users. Rental car vendors and food concessionaires have rates based on their space use. He noted that the airlines are the primary supporters of the project costs. The cargo carriers, through landing and fuel fees, are the principle payers of the airlines. Landing fees are used for debt payment. He clarified that the $3 dollar passenger facility charge has been considered, but has not been implemented. Co-Chair Mulder asked if Senator Stevens is working on a bill that would exempt rural communities from passenger facility charges. Mr. Parkan stated that there were provisions in both versions of the congressional legislation. Communities that are not connected to a road system and have populations under 10,000 would be exempted if the federal amendment were adopted. Communities that are connected by road and fly from Anchorage would pay a three- dollar fee. Kenai, Homer, Juneau, Fairbanks and Kodiak would be among those that would pay the fee. Mr. Parkan stated that the Department of Transportation and Public Facilities decided that they would not go forward with their application for a passenger facility charge at the Anchorage International Airport without the exemption that recognizes Alaska's uniqueness. Representative G. Davis asked if the Anchorage International Airport and the Administration are supporting and promoting the legislation in Washington. Mr. Parkan responded that they are supporting and promoting the legislation. Representative Bunde observed that there would be some money coming in from the federal government to help with the debt service. He emphasized that the department has stated that there would not be cost overrides. Mr. Parkan noted that the cost has not risen in the last year. He emphasized that the department is closely scrutinizing costs. Co-Chair Therriault summarized that the bond authority is needed because the payments are coming over 10 years and it is a four-year project. He asked if bond authorization would be needed if the federal payments were received in a four- year period. DAVE EBERLE, PROGRAM DIRECTOR, GATEWAY ALASKA, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES responded that the LOI payments from the federal government include other projects. He explained that LOI receipts for the first several years would go to the runway reconstruction project. LOI funds would not be available for the terminal redevelopment project until other projects are supported. He observed that the other projects are necessary for terminal redevelopment. He noted that the aprons need to be enhanced along with the concourses. Co-Chair Therriault asked if it is necessary to bond for the entire amount. Mr. Parkan noted that 2002 is the first year that LOI funds would go to the terminal project. The final completion of the project is scheduled for the year 2004. He stated that the money is needed before the department puts the project to contract. (Tape Change, HFC 99 - 44, Side 2) Mr. Parkan explained that the LOI is a letter of intent to pay discretionary dollars over a certain period of time. It is subject to congressional appropriation every year. The FAA is telling the Department of Transportation and Public Facilities that if Congress gives them the money that they expect to get every year then the state will get a piece. Co-Chair Therriault questioned what would happen if Congress did not appropriate the funding each year. Mr. Parkan stated that carriers would be responsible for paying the debt. DEVEN MITCHELL, ACTING DEBT MANAGER, DEPARTMENT OF REVENUE explained that the bonds would be structured with a 25-year maturity, so that in the event that there was non-payment, there would not be an undue burden placed on the airport. The expectation would be that the LOI funds would be used for debt service. Representative Foster asked if 1-percent for art would apply to the project. Mr. Parkan noted that 1-percent for art would apply only to the actual construction cost of the terminal portion of the project. The 1-percent for art would apply to $1 million dollars of the project. Representative Foster asked if architectural elements could be applied to the 1-percent for art requirement. Mr. Parkan responded that there might be some architectural elements that could be applied to meeting the 1-percent for art requirement. In response to a question by Representative G. Davis, Mr. Parkan explained that the repairs to the north runway are needed as a result of an accident. This is a separate project. Co-Chair Therriault asked for more information regarding what can qualify as part of the 1-percent for art. He asked if any of the building aspects could be considered. He noted that the building is artistically pleasing. Representative J. Davies stressed that the state of Alaska should build attractive public buildings. Co-Chair Therriault noted that the Fairbanks airport is functional. Representative Foster emphasized that the traveling public pays the additional cost. He noted the high cost of traveling in rural areas of the state. Representative G. Davis asked what would happen if the funding authorization were not approved. Mr. Parkan emphasized that the federal funds are committed. If a portion of the LOI were not used the money would be returned to the federal government. Representative G. Davis noted that user fees could be increased to pay for the project. Mr. Mitchell stated that there is a five-year limitation on the tax-free bonds. The bonds would become taxable after five years. In response to a question by Representative Austerman, Mr. Parkan explained that they are in the process of drafting an application for passenger facility charges at the Anchorage International Airport. He stated that the application would only be pursued if the exemptions for rural communities that are not connected to the road system and have a population of less then 10,000 were approved. Projects must be identified before the federal government will approve the charge. He noted that a portion of the passenger facility charge could go to the terminal project. The estimated they would receive $3 million dollars at the Anchorage Airport from the additional $3 dollar fee. The fees would be collected until the portion that was identified for use on specified projects has been reached. It is possible to continue the tax by submitting additional applications. The tax could be spent at any state owned airport. It is not the Department of Transportation and Public Facilities intent to spend the revenues in areas outside of their collection. There are restrictions on the use of the fee. A passenger facility charge can be collected on projects that qualify for federal FAA funding. Passenger facility charges are not generally used for projects that qualify for discretional dollars. Co-Chair Therriault asked if passenger facility charges could be used for the general fund match requirement on roads leading up to the airport. Mr. Parkan did not think that they could be used for the match requirement because the project would not qualify for federal FAA funds. Co-Chair Mulder asked if there are airports that are not state owned. Mr. Parkan responded that the state does not own airports in Juneau, Kenai, and some small fields in the North Slope Borough. He explained that Ketchikan is owned by the state, but operated by the city of Ketchikan through a lease agreement. Ketchikan has implemented a passenger facility charge. Fees are not charged on flights that stop, but continue as the same flight. He noted that the only other state that owns most of their airports is Hawaii. Municipalities or authorities own most airports. Representative G. Davis added that the state does not own the Soldtna airport. He suggested that the city of Soldtna would be interested in transferring ownership to the state. In response to a question by Co-Chair Therriault, Mr. Parkan described the application process for collecting passenger facility charges. Mr. Parkan explained that it takes approximately six to nine months for the application process. The airport sponsor identifies the projects that they want to have funded. Then there is a consultation meeting with the airlines and they comment on the projects. The application is then given to the FAA. There are public comment periods throughout the process. The FAA informs the applicant if their application is accepted and if any exemptions are approved. In response to a question by Co-Chair Therriault, Mr. Parkan explained that in a scenario involving a flight from Juneau to Seattle and Portland, that Juneau and Seattle would collect three dollars each. The collection occurs when the passenger boards. It is capped to six dollars. The fee is collected on the last two airports that the passenger gets on for the return. Portland and Seattle would collect the fee on the return. Co-Chair Therriault observed that if the plane also stopped in Ketchikan and the flight changed that Seattle and Ketchikan would collect the fee. Representative Austerman asked why exemptions would be given. Mr. Parkan stated that the exemptions allow for unusual circumstances. He explained that there is an exemption for carriers that receive less than one-percent of the total implanements at an airport. Juneau has exemptions based on the fact that it is a community with central air carriers. Ketchikan has no exemptions. HB 84 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 2:55 p.m. House Finance Committee 9 3/10/99