HOUSE FINANCE COMMITTEE January 30, 2007 1:36 P.M. CALL TO ORDER Co-Chair Chenault called the House Finance Committee meeting to order at 1:36:43 PM. MEMBERS PRESENT Co-Chair Mike Chenault Co-Chair Kevin Meyer Vice Chair Bill Stoltze Representative Harry Crawford Representative Richard Foster Representative Les Gara Representative Reggie Joule Representative Mike Kelly Representative Mary Nelson Representative Bill Thomas Jr. MEMBERS ABSENT Representative Mike Hawker ALSO PRESENT Representative Anna Fairclough; Representative Andrea Doll; Representative Kyle Johansen; John MacKinnon, Deputy Director, Department of Transportation and Public Facilities; Nancy Slagle, Director, Division of Administrative Services, Department of Transportation and Public Facilities; John Torgerson, Deputy Commissioner, Aviation, Department of Transportation & Public Facilities; Malcolm Menzies, Southeast Regional Director, Department of Transportation and Public Facilities PRESENT VIA TELECONFERENCE Ron Miller, Executive Director, Alaska Industrial Development and Export Authority (AIDEA) GENERAL SUBJECT(S): OVERVIEWS:  Department of Transportation & Public Facilities  Alaska Industrial Development and Export Authority, (AIDEA)  The following overview was taken in log note format. Handouts will be on file with the House Finance Committee through the 25th Legislative Session, contact 465-6814. After the 25th Legislative Session they will be available through the Legislative Library at 465-3808. ^ TIME SPEAKER DISCUSSION  1:37:58 PM Co-Chair Convened the House Finance Committee Chenault meeting in order to hear overview presentations from the Department of Transportation & Public Facilities & Alaska Industrial Development and Export Authority, (AIDEA).    1:38:06 PM DEPARTMENT OF TRANSPORTATION & PUBLIC  FACILITIES  1:38:09 PM JOHN Provided a handout and briefed the MACKINNON, Committee on the Department's overview, DEPUTY operations and capital programs. (Copy DIRECTOR, on File). He pointed out that the DEPARTMENT OF Department provides for the movement of TRANSPORTATION people & goods and delivery of State AND PUBLIC services. He introduced Nancy Slagle, FACILITIES Director, Division of Administrative Services, Department of Transportation and Public Facilities & John Torgerson, Deputy Commissioner, Aviation, Department of Transportation & Public Facilities.  1:40:24 PM Mr. MacKinnon Referenced Slide 5 - the Department of Transportation & Public Facilities boundaries. The main locations are headquarters in Juneau, Central Region is Anchorage Northern Region is in Fairbanks, and Southeast Region is located in Juneau.  1:41:46 PM Mr. MacKinnon Referenced Slides 6 & 7, the National Highway System (NHS). Co-Chair Chenault inquired about federal funding received for projects such as the Dalton Highway. Mr. MacKinnon explained that the Department does not receive extra money for any specific road project.  1:43:06 PM Mr. MacKinnon Referenced Slide 8 - which indicates the 84 statewide maintenance stations. Most of those stations are not manned on a 24/7.  1:43:59 PM Mr. MacKinnon Referenced Slide 9 - the Department is responsible for ports and harbors in the State. Of those, 29 are State- owned and 12 are operated in agreement with local governments. The Legislature has approved bond funding to take care of deferred maintenance.  1:44:37 PM Representative Mentioned legislation passed last week Thomas regarding the regulations needed to accompany harbor concerns. Mr. MacKinnon explained that the regulations had gone out for review to the State harbor masters for input. The Legislature needs to appropriate funding for that grant program.  1:45:54 PM Representative Understood that the Denali Commission Thomas might help municipalities get matching dollars. Mr. MacKinnon advised that the grant awards favor those with matching funds.  1:46:58 PM Mr. MacKinnon Referenced Slide 10, providing further information on ports and harbors.  1:47:47 PM Mr. MacKinnon Referenced Slide 11, measurement standards and commercial vehicle enforcement, responsible for all federal and State commercial vehicle laws to ensure safe highways. It certifies the accuracy of all weighing and measuring devices used in commerce; issues permits for overweight vehicles and has implemented a new one-stop web- based permit system.  1:49:57 PM JOHN Referenced Slide 12 - noting that TORGERSON, Alaska Marine Highway System has 11 DEPUTY vessels, 32 port-of-calls and 3,500 COMMISSIONER, nautical miles. He highlighted the AVIATION, distribution of financial needs: DEPARTMENT OF · 25% fuel TRANSPORTATION · 61% labor, and & PUBLIC · 14% other  FACILITIES 1:51:37 PM Mr. Torgerson Highlighted Slide 14, indicating the location of the 258 airports with an annual AIP capital budget of $200 million dollars. The Department is the largest airport operator in the U.S.  1:52:36 PM Mr. Torgerson Referenced Slide 16, the Alaska International Airport System (AIAS), which: · Includes Anchorage and Fairbanks International airports · Enterprise fund covers operating costs and capital costs not paid for by federal funds · Total annual operating budget is approximately $74.7 million · FAA capital funds and passenger facility charges total over $45.4 million dollars annually  · Renovation of A & B concourses in Anchorage & replacement of the Fairbanks terminal are underway  1:53:39 PM Mr. Torgerson Mentioned Slide 17, the Ted Stevens Anchorage International Airport, which is the #1 cargo airport in North America. It serves about 5 million passengers per year. There are currently 58 airlines currently operating at that airport.  1:54:34 PM Mr. Torgerson Highlighted Slide 18, the Fairbanks International Airport, which is listed rd as the #43 cargo airport in the United States. There are 17 airlines currently operating at that airport.  1:55:22 PM Mr. Torgerson Referenced Slide 19, the two international airport construction budgets. · $70 million FY06 - Anchorage · $36 million FY06 - Fairbanks  1:56:20 PM Mr. MacKinnon Pointed out that Slide 20 indicates the FY08 regional maintenance funding: · $105.5 million total operations budget · $11.6 - Southeast · $54.2 - Northern Region · $39.7 - Central Region  1:56:48 PM Mr. MacKinnon Slide 21 indicates the maintenance and operations General Fund authorizations, currently, undergoing a federal highway safety plan. Since 1983, funding has been flat.  Mr. MacKinnon Continued that the Department is currently undergoing a federal required highway safety plan. The Department works to decrease the number of fatalities.  1:58:50 PM Representative Asked about consideration of reducing Gara highway fatalities which result from one-lane each-way highways. He thought that more graphic signage might help, worrying about night-time driving & how well the pull-outs are marked.  2:00:08 PM Mr. MacKinnon Offered to investigate those concerns.  2:00:38 PM Vice Chair Questioned where the seat belt funding Stoltze dollars went. Mr. MacKinnon responded that the Department received $2.6 million dollars for passage of a primary seat belt law. He offered to provide additional information to the Committee.  2:01:07 PM Representative Noted that certain areas along the Crawford highways have multiple accidents; he recommended placement of 'jersey barriers'. Mr. MacKinnon thought that would create a negative impact during snow conditions.  2:03:16 PM Representative Inquired about the Girdwood fire that Joule took out one of the maintenance stations. Mr. MacKinnon explained that the fire happened a week ago and the Department did loose the warm storage building and three pile trucks. The Department has mobilized assets from other areas so that station still receives adequate maintenance.  2:04:27 PM Representative Interjected that the marine highway Thomas transportation does not result in the same number of deaths as on the road system. Mr. MacKinnon appreciated that.  2:05:27 PM Vice Chair Commented on the lost assets to the Stoltze Department.  2:05:55 PM Representative Asked if roads and bridges were named Gara after legislators.  2:06:13 PM Mr. MacKinnon Highlighted Slide 22 - FFY07 Federal maintenance programs: · Highways preventative maintenance in the amount of $11 million dollars; · Pavement refurbishment in the amount of $39 million dollars · * Aviation preventive maintenance in the amount of $4 million dollars.  2:07:28 PM Mr. MacKinnon Referenced Slide 23, disasters from both storms and fires, Keystone Canyon & Copper River Highway. When disasters occur, the Department is the first response and then it is turned over to contractors.  2:09:22 PM Vice Chair Asked if the large rock was owned by Stoltze the State. Mr. MacKinnon agreed that it is.  2:09:43 PM Mr. MacKinnon Referenced Slide 24 - the facilities maintenance consisting of over 700 buildings; of which, 213 are over 30 years old.  2:10:59 PM Mr. MacKinnon Continued Slide 25, the construction oversight. Construction consists of: · Contract Administration · Field inspection · Quality assurance  2:11:34 PM Representative Inquired how insurance is affected by  Joule the lack of fire suppression systems in older buildings. Mr. MacKinnon responded that the State is essentially self-insured.  2:12:22 PM Mr. MacKinnon Noted that Slide 26 highlights the construction program, which consists of 190 active highway & ferries, 89 airports and 6 harbors.  2:13:32 PM Co-Chair Meyer Asked if there was a trend in the increases to construction costs. Mr. MacKinnon acknowledged that inflation is taking a toll on projects. The General Fund projects are easier than the federal funded projects because of the time element of getting it out to bid. Vice Chair Meyer mentioned the upgrade to the trade roads in Anchorage. He pointed out that the Mayor of Anchorage was requesting more funding for that project in order to cover costs. He worried about funding of harbors. He asked if the Legislature should assume that will become the trend. Co-Chair Meyer asked about active harbor projects. Mr. MacKinnon responded that Slide 10 addresses that concern. The Department has been actively transferring deferred maintenance needs to the local governments.  2:16:48 PM Co-Chair Meyer Questioned dollars funded to projects that never happened. Mr. MacKinnon explained that the Governor has cancelled some projects and the Legislature will decide about future funding of such projects. Vice Chair Meyer asked about the 'roads to resources' projects. Mr. MacKinnon agreed.  2:18:44 PM Representative Commented on the amount of the funding Thomas available for the Alaska Marine Highway System (AMHS). Mr. MacKinnon stated that there is a ferry being built for the Mat-Su Borough. It is a Department of Defense project, which is slated to be built under contract in the Ketchikan ship yard. He did not know of any other ferries scheduled on the books.  JOHN Noted that he was not aware of any TORGERSON, other boats under contract at this time  DEPUTY and was not familiar where the $1.2 COMMISSIONER, billion dollars came from. He needed AVIATION, to review the list.  DEPARTMENT OF TRANSPORTATION & PUBLIC FACILITIES 2:21:00 PM Representative Mentioned the Juneau Access Road and Thomas how the Department let two contracts in the amount of $20 million dollars go forward after the Governor had 'pulled' those contracts. He asked who in the Department had given that authority. Mr. MacKinnon noted that he had anticipated that question.  2:22:05 PM MALCOLM Replied that the Department let two MENZIES, contracts go last year. The first was SOUTHEAST for the Juneau Access Road - two REGIONAL segments totaling approximately 20 DIRECTOR, miles of road. Governor Palin, when DEPARTMENT OF elected, cancelled that contract. At TRANSPORTATION that time, the contract for materials AND PUBLIC was placed. He explained that bridges FACILITIES and culvert materials went through and were not cancelled for that project. th It was awarded November 27. Governor Palin supports the road and wrote a letter to the Corps of Engineers in support of the permit action on that contract.  2:23:38 PM Representative Noted, he was confused and asked why Thomas the Department of Transportation & Public Facilities bought $20 million dollars worth of materials without the necessary permitting. Mr. Menzies responded that the Department needs three permits for the project. One permit is in hand - the State permit for construction activity. The Department does not have the bridge crossing permit from the Coast Guard nor the final permit from the Corps of Engineers. Materials were purchased in fear of inflation. The economic analysis showed that the materials should be bought using General Funds. As the materials are used on the project, the federal government will reimburse.  2:25:15 PM Representative Questioned the "favoritism" given to Thomas that project. Mr. Menzies stressed that it was not favoritism but rather an "economy of scale". The projects in  Representative Bill Thomas' district are not as large as the Juneau Access Road.  2:26:18 PM Mr. MacKinnon Referenced Slide 27, historical construction expenditures for AMHS, highways and aviation.  2:26:59 PM Mr. MacKinnon Referenced Slide 28, the Statewide Transportation Improvement Program (STIP), which is a required listing of planned project activities for all federally funded highway construction projects.  2:28:35 PM Mr. MacKinnon Highlighted the STIP funding categories - the National Highway System and the Alaska Marine Highway System.  2:30:42 PM Mr. MacKinnon Mentioned the funding categories consisting of the federally defined routes approved by Congress that meet strict criteria; 15% of the centerline miles carry 43% of the vehicle miles traveled and generate 83% of the major and fatal accidents. He added that the Alaska Highway System is a category for other high level roads with 1,508 miles and 94 proposed miles and interval to address at $1 mile.  2:30:49 PM Vice Chair Asked about Slide 29 funding sources. Stoltze He asked if the State had 'borrowed ahead'. Mr. MacKinnon responded that the State did issue about $100 million dollars worth of Grant Anticipation Revenue Vehicles (GARVEE) bonds. Payment on GARVEE bonds come from federal funding in the amount of $13 million per year. Other states use only GARVEE bonds and their entire federal program pays the debt on those bonds. He added that the funding bond package had about $100 million dollars and $130 million were harbor transfer projects. Representative Stoltze asked if there was caution about using GARVEE bonds. Mr. MacKinnon noted discussion in the last couple years of using more GARVEE funding, which makes sense if the State is doing one or two large projects. Smaller projects should use federal programs.  2:34:06 PM Co-Chair Meyer Asked if Anchorage was doing a good job of owning and maintaining their roads. Mr. MacKinnon agreed that Anchorage does 'step up to the plate' with $40- $50 million per year in road bonds. In Anchorage, about ½ the roads are owned by the State and the other ½ by the Municipality. Vice Chair Meyer inquired if $10 billion dollars was the amount needed by the Department to do all their projects. Mr. MacKinnon responded that the needs list for the entire State would amount to the $10 billion. The State receives about $425 million federal dollars. Not all that funding goes toward construction; some is ear- marked for planning and safety.  2:36:28 PM Representative Asked what a highway-to-highway project Joule was. Mr. MacKinnon apologized for that reference. There is a project in Anchorage that has received a tremendous amount of public review. He offered to provide information on such projects. Representative Nelson voiced concern with the Congressional resolutions anticipated reduction to Alaska of 9- 18%.  2:37:36 PM Mr. MacKinnon Replied that he would be addressed that in the next two slides. He referenced Slide 30, the STIP funding categories: · The community transportation program · The trails and recreational access for Alaskan  2:39:00 PM Mr. MacKinnon Reviewed the 2006 - 2009 STIP funding concern voiced by Representative Nelson. He commented that the news is not as bad as the Department anticipated. The appropriation level for FY07 is higher than 85%, which is higher than the estimate of $40 million. The funding is down by $13 million, equating to $4 million for construction.  2:40:53 PM Representative Questioned what projects would be Nelson delayed.  2:41:26 PM Mr. MacKinnon Responded that he would provide the information at a later date.  2:41:41 PM Mr. MacKinnon Reviewed Slide 33 - the Operating Budget request by fund source. The total operating request is $544.3 million dollars.  2:42:04 PM Mr. MacKinnon Pointed out that the largest piece is maintenance and operations in the  amount of $105.5 million dollars. Another piece is the $98.1 million dollar support for AMHS.  2:42:53 PM Mr. MacKinnon Highlighted Slide 35 - Department challenges: · Recruiting and retaining staff · Lack of FFY07 transportation appropriation bills · Preserving & protecting Alaska's infrastructure · Major proposed transpiration projects · AMHS configuration · High inflation  2:44:52 PM Representative In response to a question by Kelly Representative Kelly, Mr. MacKinnon spoke to the Gravina Island bridge. He noted that there is a $20 million dollar highway project underway from earmarks. The likelihood of having the funds appropriated is minimal.  2:46:05 PM Mr. MacKinnon In response to a question by Representative Thomas, Mr. MacKinnon explained that $98.1 million dollars is the General Fund support that represents the revenue that the system receives for ticket sales. Representative Joule asked if the requested amount was down from FY07. Mr. MacKinnon said it was up from that time period.  2:47:18 PM NANCY SLAGLE, Explained that the budget had been DIRECTOR, increased to reflect increases to the DIVISION OF base budget for fuel. Also, includes ADMINISTRATIVE the Public Employees Retirement System SERVICES, (PERS) increased amounts.  DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES 2:48:02 PM Representative Noted the difficulty in retaining Thomas employees and questioned if the retention problem was specific to higher departmental level employees.  2:48:37 PM Mr. MacKinnon Replied the difficulty exists "across the board". There are 700 - 800 people in maintenance that can make more working construction for fewer months of the year.  2:49:29 PM Representative Questioned privatization options.  Kelly 2:49:54 PM Mr. MacKinnon Responded that the Department continually looks for privatization options and privatizes about 40% of their work in some areas. The Department has considered contracting highway maintenance, but cautioned that it is more difficult to return to State operations. Prices tend to drop in the first year of privatization, but increase subsequently. He believed that the Department does a better job in highway maintenance.  2:52:16 PM Vice Chair Spoke in support of State functions and Stoltze felt the Department does a good job.  2:53:35 PM Representative Added his support of the success Foster accomplished by the Department.  Testimony by the Department of Transportation & Public Facilities was concluded.  ALASKA INDUSTRIAL DEVELOPMENT AND  EXPORT AUTHORITY, (AIDEA)    2:54:33 PM RON MILLER, Provided members with a handout - TESTIFIED VIA Alaska Industrial Development and TELECONFERENCE Export Authority Overview. (Copy on EXECUTIVE File). AIDEA's function and mission DIRECTOR, are to provide Alaskan businesses with ALASKA long-term commercial and development INDUSTRIAL financing at a reasonable cost. DEVELOPMENT AIDEA's credit rating has been upgraded AND EXPORT twice in the last 6 months, and is now AUTHORITY up to the A level. (AIDEA) AIDEA has a 5-member board, with two members from the public and three, commissioners in State government. Since 1986, AIDEA has paid dividend to the State general fund. AIDEA has a large portfolio with strong performance and low delinquency rate. AIDEA assists large and small Alaskan projects in both urban and rural areas. All major sections, including retail, tourism, natural resource extraction and processing, air cargo and services receive AIDEA's help. AIDEA does not compete with the private sector, does provide grants and finances only large projects.  2:59:56 PM Mr. Miller Referenced Slide 10 - Key AIDEA programs: · Loan participation · Conduit Revenue Bond  · Loan guaranty and export assistance · Rural Development Initiative Fund · Small business economic development loans.  3:01:17 PM Co-Chair Noted that AIDEA does not compete with Chenault the private sector. Mr. Miller emphasized that AIDEA partners with the private sector. The State supports the private sector, but does not own assets.  3:02:33 PM Mr. Miller Spoke to loan diversification. He highlighted that by area: · Anchorage · Interior · Northern · Mat-Su · Gulf Coast · Southeast · Southwest From FY02 through FY06, 1,781 construction jobs and 2,999 permanent jobs were created or retained through AIDEA loan participation program.  3:02:54 PM Mr. Miller Identified the Conduit Revenue Bond Program. He noted that AIDEA's board adopts eligibility resolution for projects for tax-exempt conduit revenue bonds. That has been an active program. There has been $1 billion dollars through the life of the program; $354 was issued between 2003 and 2006. The Fairbanks Memorial Hospital was one of the largest expansion projects among them.  3:05:08 PM Mr. Miller Referenced Slide 21 - the Credit Program, loan guaranty and export assistance. The Department of Commerce, Community and Economic Development manages some of their programs. The program provides for: · Eligible financial institutions with a guarantee of up to 80% not to exceed $1 million dollars on the principal of the loan · Assistance to manufacturing enterprise for the export of goods and services · AIDEA is a city-State partner with the U.S. Export-Import Bank  3:06:18 PM Mr. Miller Slide 24 - Explained that under AIDEA's Development Finance Program: · Objective is to finance infrastructure necessary to support Alaskan economic development projects · Method is that AIDEA owns the project and is repaid through user fees, leases and other revenue sources.  3:07:07 PM Mr. Miller Slide 25 - in order to qualify, the project must be endorsed by the local government; 3AAC 99.530 requires that: · The project will be economically advantageous to the State and to the general public welfare and will contribute to the economic growth of the State of Alaska · The project applicant is financially responsible · The project is economically and financially feasible and able to produce revenue adequate to repay the bonds or loans with which it is financed  3:08:06 PM Mr. Miller Slide 28 - highlights the Red Dog Mine has provided over 500 jobs, with over 57% of those jobs, held by NANA shareholders. The jobs represent over 30% of the private sector jobs in that area.  3:08:44 PM Mr. Miller Slide 30 - Addresses the Snettisham hydroelectric project: · A 78,210 kw hydroelectric project locate 28 air miles southeast of Juneau · Provides approximately 80% of the Juneau-Douglas area electrical energy · AEL&P purchases all project power under a long-term power sales agreement  3:09:07 PM Mr. Miller Slide 31 - Ketchikan Shipyard, owned by AIDEA with local partners: · Ketchikan Gateway Borough · City of Ketchikan · Ketchikan Public Utilities  3:10:08 PM Mr. Miller Slide 32 - Skagway Ore Terminal, which has been idle since 1998. AIDEA signed a seven year user agreement with  Sherwood Copper of Vancouver, BC to trans-ship copper-gold production from a mine located at Minto, YT.  3:10:34 PM Co-Chair Asked the amount of money placed into Chenault the Ketchikan Ship yard. Mr. Miller stated that AIDEA assumed that responsibility from the Department of Transportation & Public Facilities. Co-Chair Chenault asked for the numbers indicating how much State money is involved, how much federal dollars and the amount of income received from that property.  3:11:27 PM Mr. Miller Highlighted Slide 33, the Skagway Ore Terminal with an estimated cost of $7.6 million dollars to rebuild part of that terminal. Costs will be paid through user-fees.  3:13:03 PM Mr. Miller Slide 34 identifies the local benefits to that community.   3:13:27 PM Co-Chair Asked how the ore would be transported. Chenault Mr. Miller explained that it would be trucked down by Lydon Transport from Minto, which should provide a large savings.  3:14:11 PM Mr. Miller Referenced Slide 35, the Healy Clean Coal Project. AIDEA continues litigation and mediation with Golden Valley Electric over access issue to that facility.  3:15:06 PM Mr. Miller Referenced Slide 37: · Alaska Energy Authority (AEA) builds rural energy projects He noted that AEA builds rural energy projects; owns State energy assets; manages the Power Cost Equalization (PCE) program; provides training and assistance to rural utilities; pursues alternative energy programs; and responds to electrical power emergencies.  3:15:50 PM Representative Asked what the active alternative Joule energy programs included. Mr. Miller noted the measurement of the wind resource potential; participating in the Chena geo-thermal project; investigating geo-thermal potential in other areas of the State; active on a couple bio-mass projects, coupled with the power-mass loan program. Mr. Miller added, that they offered the  first title power conference in the City of Ketchikan. Also, $27 million dollars in alternative energy projects around the State at this time, most of which are federal funds. Representative Joule asked if coal bed methane (CBM) was being used at this time. Mr. Miller replied it was not yet.  3:18:29 PM Co-Chair Questioned where the $12.6 million Chenault dollars allocated for the Healy Clean Coal went. Mr. Miller explained there are costs associated with restarting the plant; it has been idle since 1959. Funding is needed to update & modify it.   Testimony by AIDEA was concluded.  3:19:25 PM Co-Chair ADJOURNMENT Chenault The meeting was adjourned at 3:19 P.M.