HOUSE FINANCE COMMITTEE April 13, 1999 2:30 P.M. TAPE HFC 99 - 78, Side 1 TAPE HFC 99 - 78, Side 2 CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 2:30 p.m. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Vice-Chair Bunde Representative Kohring Representative Austerman Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Mike Tibbles, Staff, Representative Therriault; Kurt Parkan, Deputy Commissioner, Department of Transportation and Public Facilities; Deven Mitchel, Acting Debt Manager, Department of Revenue. TESTIFIED VIA THE TELECONFERENCE NETWORK Cliff Arque, Alaska Airlines, Seattle. SUMMARY HB 84 "An Act relating to international airports revenue bonds; and providing for an effective date." HB 84 was REPORTED out of Committee with "no recommendation" and with a fiscal note by the Office of the Governor, 2/10/99. HB 96 "An Act relating to deposits to the Alaska permanent fund." CSHB 96 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the Department of Revenue, 3/24/99. HOUSE BILL NO. 96 "An Act relating to deposits to the Alaska permanent fund." Co-Chair Therriault noted that the Committee discussed tightening the title of HB 96 during the April 12, 1999 hearing. He provided members with Amendment 1 (copy on file). Amendment 1 tightens the title. He added that the 25 percent deposit would be made in the front section of the budget and would not be counted as general funds or as legislative action. MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT noted that Dan Spencer, Office of Management and Budget indicated that the 25 percent deposit would not be counted as general funds. Mr. Spencer stated that only special appropriations are counted when calculating amounts of "legislative deposits: to the principle of the permanent fund. Mr. Tibbles verified this with Jim Kelly, Legislative Liaison, Alaska Permanent Fund Corporation. Mr. Kelly explained that inflation proofing is also counted with special appropriations but that the statutory 25 percent deposit would not be counted. Representative J. Davies questioned if there should be a change to the manner it is counted. In response to a question by Vice-Chair Bunde, Co-Chair Therriault clarified that money not deposited into the permanent fund would lapse to the general fund. Money that is deposited into the permanent fund would not show as a general fund appropriation. Vice-Chair Bunde observed that there is a zero fiscal note. He questioned if the additional money in the general fund should be shown. Co-Chair Therriault MOVED to ADOPT Amendment 1. Representative J. Davies asked what would be included under the new title. Co-Chair Therriault reiterated that according to the Legislative Affairs Agency legal counsel it includes all the deposits that go into the permanent fund and limits it to the 25 percent that is mandated by the Constitution. The intent of the amendment is to prevent the scope of the legislation from growing under a broad title. He maintained that concerns that the legislation would turn into a general appropriation to the principal are not justified because it is not an appropriation bill. It is statutory change legislation. Representative J. Davies wondered why the 25 percent was not referenced in the amendment as the constitutionally mandated amount. Representative J. Davies MOVED to AMEND Amendment 1 by adding a conceptional amendment to clarify that the 25 percent referenced is the amount mandated under Article 9 section 15. There being NO OBJECTION, it was so ordered. There being NO OBJECTION, Amendment 1 as amended was adopted. Representative Foster MOVED to report CSHB 96 (FIN) out of Committee with the accompanying fiscal note. Representative J. Davies expressed reservations regarding how this bill and the other pieces of the budget plan would fit together. Representative Grussendorf echoed his concerns. He asked if an overall budget package would be developed. Co-Chair Therriault stated that the legislation would be brought into discussions regarding an overall long-range plan. Representative Norman Rokeberg emphasized that the legislation is a statutory change and would therefore need time to go through both bodies. He anticipated that it would be a tool for inclusion in the broader picture. CSHB 96 (FIN) was REPORTED out of Committee with "no recommendation" and with a zero fiscal note by the Department of Revenue, 3/24/99. 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. House Bill 84 would give the Department of Transportation and Public Facilities $25 million dollars in bonding authority needed to complete the Anchorage International Airport terminal project. He gave a brief history of the project. He noted that the airport terminal project was presented to the airlines for a vote in 1994. The airlines voted to authorize up to $235 million dollars in bond authority. The department presented the Legislature with a request for $204 million dollars in bond authority. 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 million dollars in federal funding through a letter of intent (LOI) with the FAA. The federal dollars will be received over a ten-year period. 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 bonds would be paid by the airlines and the federal money would go into the revenue account to reimburse the airlines for the bonds. In response to a question by Co-Chair Therriault, Mr. Parkan stated that some portions of the project would qualify for the one percent for art program. He noted that it is difficult to count design aspects as art. Representative J. Davies stated that it is clear that wall and floor finishing would be part of the industrial design and not count toward the one percent for art program. Vice-Chair Bunde noted that the Committee has received assurances that the project would not go over budget. Mr. Parkan stated that the project is on schedule and on budget. He did not anticipate that the project would be over-budget, but acknowledged that they are only 3 percent into the project. He emphasized that the management team has handled larger projects. Co-Chair Therriault questioned if continuation of the project is contingent on the extra bonding. He observed that the current appropriation is not exhausted. Mr. Parkan clarified that the construction schedule is contingent on receiving the bonding authority. The design phase is nearly completed. If the bonding were not approved by the legislature the project would probably be stopped and the project reviewed. He reiterated that it his intent to stay on budget. Representative Foster referred to the fiscal note and the size of the debt service. He asked what would be paid back on the loan. DEVEN MITCHELL, ACTING DEBT MANAGER, DEPARTMENT OF REVENUE discussed the fiscal note. He noted that there would be a total of $350 million dollars in debt service for all international airport revenue bonds. This includes all of the issuances over the last 31 years. Each issuance increases the authorized amount. He noted that the payback would be more than the bond amount. Page 5 of the fiscal note demonstrates the capitalized interest costs of $3.5 million dollars. The total payback would be $51,483,183 dollars. Representative Foster questioned how much the improvements would cost persons traveling from rural areas of the state. Mr. Parkan stated that the department has not received opposition from any airlines. He stressed that overall costs are reduced by the addition of federal funds. Co-Chair Therriault noted that the debt service would be paid from the International Airport Revenue Fund. Mr. Parkan noted that the funds from FAA discretionary dollars would be deposited into the International Airport Revenue Fund. Representative Austerman questioned the relationship of passenger facility charge fees. Mr. Parkan noted that the department is in the process of putting in an application for passenger facility charges for the Anchorage and Fairbanks International airports. The first application would be put toward the terminal project to reduce debt service payments. This could reduce debt service paid by an additional $15 million dollars. Representative Austerman asked if the department is requesting any exemptions. Mr. Parkan noted that the department is asking for an exemption for communities of less than 10,000 that are not connected to the road system. This would include Bethel, Nome, Kotzebue, and many of the small communities around the state. The application process is proceeding. The intent is to have the plan reviewed by the airlines in May. If it is approved it would be submitted to the FAA. Representative G. Davis asked the rationale for the exemption. He asked if Kodiak could charge a passenger facility charge. Mr. Parkan noted that Kodiak is a state owned airport. The state could charge a passenger facility charge, but there is no intent to implement one in Kodiak. Mr. Parkan noted that opposition to the passenger facility charge in Fairbanks came from carriers that serve the rural areas. The rationale for the exemption is that these communities can only be served by air. Representative Foster noted remarks in opposition to the project by small air carriers. Vice-Chair Bunde asked if the marine highway system would be considered as part of the road system. Mr. Parkan noted that the exemption would be based on the hard road system. Vice-Chair Bunde questioned why the payoff would be over 25 years. Mr. Mitchell explained that the 25-year pay back period is designed to protect the airlines. He noted that the bonds are based on federal discretionary dollars. If funding did not come through there would be an undue burden on the airport to have debt service based on a 10-year payback. Mr. Parkan explained that the LIO is a letter of intent from the FAA stating that they intend to give the state the money over 10 years. He acknowledged that it is subject to appropriation by Congress. He stressed that this is a standard procedure used by other airports in other states. CLIFF ARQUE, STAFF VICE-PRESIDENT, PROPERTIES AND FACILITIES, ALASKA AIRLINES, SEATTLE AND CHAIRMAN, ANCHORAGE AND FAIRBANKS AIRLINES AIRPORT AUTHORITY COMMITTEE testified via teleconference in support of HB 84. He noted that the Airlines Airport Authority Committee is an organization of 25 airlines that have signed operating agreements at the two airports. He clarified that comments referenced by Representative Foster were in relationship to concerns about potential cost overruns and the need to proceed with passenger facility charges. He stated that he did not know of any airlines that are opposed to HB 84. He observed that the legislation would not require additional money. The request is for a bond issuance that would allow the project to be completed on schedule and the bonds to be paid back. The payback would be through federal discretionary money that has been promised in a LIO that would be paid over a 10-year period. Representative Foster asked the connection between passenger facility charges and HB 84. Mr. Arque stated that there is no connection between passenger facility charges and the legislation. He noted that passenger facility charges would supply additional funds to reduce the direct payments from the airlines. House Bill 84 would only supply the cash needed to bid the project. The cash must be in hand before the project can be bid. For the project to stay on schedule the bid must occur in the spring. Mr. Arque stated that the increase in the cost would be modest. He did not know if the cost of the project would be factored into the cost of tickets. Representative Foster asserted that carriers must pass on costs to the consumers. Representative Austerman agreed that airfares would go up as a result of the project. He referenced concerns by Senator Pearce. (Tape Change, HFC 99 - 78, Side 2) Mr. Parkan acknowledged that Senator Pearce had expressed concerns regarding baggage handling. He stated that he had spoken to Senator Pearce and the department had addressed her concerns. He observed that Senator Pearce's concerns were separate to the issue of the bond authority needed to capture federal funds. In response to a question by Co-Chair Mulder, Mr. Parkan explained that the first LIO payment would be received this year. Payments until 2002 would go to the non-terminal project. The remaining funds would go to the terminal project. The payment amount varies. The payment for 1999 is $3.9 million dollars. The department has also pledged a portion of its entitlement funds to the project. The total funds for the project would be between $4 and $5 million dollars per year. Co-Chair Mulder observed that the department would receive more funds in the near years than the debt service would cost. Mr. Mitchell noted that the funds would be deposited into the Airport Revenue Fund and used to pay debt service. He agreed that funds would be received prior to the debt service. There would be a 4.95 interest rate on the bonds. Co-Chair Mulder noted that Senator Pearce was concerned with issues surrounding baggage. He stated that Mr. Plum assured him that modifications to resolve baggage issues would be made without cost overruns. Representative Foster reiterated concerns that costs would be passed to rural residents. Co-Chair Therriault asked if the payment schedule is based on an increase in passenger deplanements. Mr. Parkan stated that the project was based on a 3 percent increase over time. He observed that the estimate was conservative. Other projections used a 4 percent growth rate. He acknowledged that there was a dip in the last year, but pointed out that the rating agencies and feasibility analysts did not show concern. Co-Chair Mulder observed that the price of fuel has a larger impact on the cost of airplane tickets. He acknowledged that there would be some impact from the project. He pointed out that the legislature decided to advance the project and requested that the department obtain additional federal funding. The department was successful in obtaining a LIO for $25 million dollars. He emphasized that a delay would deny an opportunity to capture a favorable interest rate. Co-Chair Mulder MOVED to report HB 84 out of Committee with the accompanying fiscal notes. Representative Williams OBJECTED. Vice-Chair Bunde noted that he was formerly employed by Northern Air Cargo. He expressed concern that the expenditure is coming during a time of fiscal deficits. Representative Williams Withdrew his objection. He noted that some air carriers preferred that the project proceed in stages. Representative J. Davies clarified that the project has not increased in cost. A portion of the cost is being replaced with federal money. Mr. Parkan added that the airlines would make the debt payments. Their payments would be reduced by the federal funds. Vice-Chair Bunde maintained that passengers would pay for the debt service. HB 84 was REPORTED out of Committee with "no recommendation" and with a fiscal note by the Office of the Governor, 2/10/99. ADJOURNMENT The meeting adjourned at 3:35 p.m. House Finance Committee 8 4/13/99