HOUSE SPECIAL COMMITTEE ON INTERNATIONAL TRADE AND TOURISM January 28, 1997 10:21 a.m. MEMBERS PRESENT Representative John Cowdery, Chairman Representative Eldon Mulder Representative Pete Kott Representative Gail Phillips Representative Kim Elton MEMBERS ABSENT Representative Ramona Barnes Representative Reggie Joule COMMITTEE CALENDAR OVERSIGHT HEARING ON STATE-FUNDED INTERNATIONAL TRADE ACTIVITIES PREVIOUS ACTION No previous action to record. WITNESS REGISTER MARCO PIGNALBERI, Legislative Assistant to Representative Cowdery Alaska State Legislature Capitol Building, Room 416 Juneau, Alaska 99801 Telephone: (907) 465-3879 POSITION STATEMENT: Provided oversight on the committee's history. CHARLES NEFF, Director University of Alaska Anchorage, Alaska Center for International Business; Director, American Russian Center Address not provided Telephone: Not provided POSITION STATEMENT: Provided oversight on state-funded international activities. JAMES McMILLAN, Deputy Director of Credit Alaska Industrial Development and Export Authority Address not provided Telephone: Not provided POSITION STATEMENT: Provided oversight on state-funded international activities. JOSEPH L. PERKINS, Commissioner Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-3900 POSITION STATEMENT: Provided oversight on state-funded international trade activities. KURT PARKAN, Deputy Commissioner Office of the Commissioner Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-3900 POSITION STATEMENT: Provided oversight on state-funded international trade activities. MORTON PLUMB, Director Anchorage International Airport Department of Transportation and Public Facilities P.O. Box 196990 Anchorage, Alaska 99519-6960 Telephone: (907) 266-2525 POSITION STATEMENT: Provided oversight on state-funded international trade activities. DOYLE RUFF, Manager Fairbanks International Airport Department of Transportation and Public Facilities P.O. Box 60369 Fairbanks, Alaska 99706-0369 Telephone: (907) 474-2500 POSITION STATEMENT: Provided oversight on state-funded international trade activities. ACTION NARRATIVE TAPE 97-1, SIDE A Number 0001 CHAIRMAN JOHN COWDERY called the meeting of the House Special Committee on International Trade and Tourism to order at 10:21 a.m. Members present at the call to order were Representatives Cowdery, Kott, Phillips, and Elton. Representative Mulder arrived at 11:00 a.m. Members absent were Representatives Barnes and Joule. This meeting was teleconferenced to Seward and Anchorage. OVERSIGHT HEARING ON STATE-FUNDED INTERNATIONAL TRADE ACTIVITIES CHAIRMAN COWDERY said this meeting would continue the oversight hearings began in the last legislature. He said Marco Pignalberi, Legislative Assistant, would provide some historical background to show where the committee is at today. Number 0095 MARCO PIGNALBERI, Legislative Assistant to Representative Cowdery, said that preliminary to this hearing we gathered historical files from the past chairperson, Legislative Research, House Records, and the House/Senate majority staff. He added that Speaker Phillips was gracious enough to loan the committee her personal files which were very helpful. MR. PIGNALBERI said the retro-view was still incomplete, but it would be filled in by the witnesses over the next two days of hearings. He said a patched together chronological history would be given to provide a context to today's oversight hearing. MR. PIGNALBERI said in the 19th Legislature, March 1995, the Senate President and the House Speaker wrote to Governor Knowles urging him to convene a strategic planning group to formulate a coordinated international trade policy. They recommended that the Governor's Office of Management and Budget (OMB) take charge of this effort. They laid out the goals and participants for a coordinated plan. MR. PIGNALBERI said that later in March, the Director of the United States Department of Commerce, International Trade Administration wrote to Governor Knowles endorsing the legislative suggestion, saying, "A strategic assessment of...Alaska's trade policies is overdue." MR. PIGNALBERI said in April of 1995, Governor Knowles replied to President Pearce and Speaker Phillips. He said his multi-agency group called Marketing Alaska, headed by Commissioner Hensley, would provide the strategy to coordinate the state's activity in international trade. He suggested that he would work with the legislature during the 1995 interim. He said, "Alaska's ability to promote our resources in international markets was compromised by the House Majority actions in the Finance Committee." MR. PIGNALBERI said that absent any concrete action by the Governor, the legislature in July of 1995, funded an "Evaluation of State Agencies Engaged in International Trade," and a "Needs Assessment of Private Agencies Involved in International Trade." The needs assessment was contracted to the World Trade Center. It was conducted as a widespread cooperative effort involving participants from Fairbanks, Anchorage, Kenai and Juneau. Both parts of the evaluation, that is the public an private sector, were carried out by use of an extensive survey questionnaire about international trade activities. The Governor was asked to support this effort. Number 0299 MR. PIGNALBERI said in August of 1995, the Governor replied to the invitation by explaining that his Marketing Alaska program has 125 Alaskans participating in seven task forces to promote Alaskan products. He noted that neither Speaker Phillips nor President Pearce personally attended any task force meetings and urged their more active participation. MR. PIGNALBERI said the record became clear at this point that the Governor's office confused or choose to confuse the legislature's initiative to analyze the effectiveness of state resources spent on international trade, with the doing of the activities that we wanted to have analyzed. The Governor noted budget cuts to the Office of International Trade (OIT) and said, "I am skeptical of funding additional studies of how we are doing." Number 0363 MR. PIGNALBERI said the legislature and the World Trade Center completed their work during the interim of 1995. A summary report of the "Private Sector Business Needs Assessment" was published by the World Trade Center. MR. PIGNALBERI said the files do not contain a summary report for the "Evaluation of State Agencies." He said it is believed that a copy has been located in Anchorage which is being forwarded to the committee. There are copies of the state agency responses for the committee to review. MR. PIGNALBERI said that during the 1996 session, the legislature conducted hearings on the results of the needs assessment and the state agency evaluations. A resolution was proposed to implement the results, it was not formally submitted. Number 0408 MR. PIGNALBERI said the next step is based on what this committee and the 20th Legislature shall decide. Number 0419 REPRESENTATIVE GAIL PHILLIPS requested a copy of the historical analysis. Number 0475 CHARLES NEFF, Director, the University of Alaska Anchorage, Alaska Center for International Business (ACIB); and Director, American Russian Center, was next to testify. He said he would try to explain the groups in a way that would elaborate on information he already submitted to the committee. MR. NEFF said the ACIB is dedicated to practical work that is responsive to business and industry. He said ACIB does not conduct academic, abstract research. He said there is a bit of a misunderstanding that because ACIB is at the university, it is like another university department. He said it is not. MR. NEFF said ACIB is part of a statewide group of agencies that the committee will hear from today and Thursday. He said these groups are very much working together. He said there is a feeling that there is a lot of overlap, lack of coordination with groups that are essentially going their own way. He said that the contrary is true. He said the main groups working on international trade and international issues meet monthly as a round table group with the intent to inform each other of what they are doing and to use each other's resources in order to reinforce their own efforts. He said a kind of division of labor has been formed. Number 0641 MR. NEFF said the university's goal, in all of its activities, is to get businesses and individuals ready to enter the international markets. He said this might begin with educational programs at the university, research on how to develop a business plan, direct services provided to member groups by the World Trade Center, or it might mean providing opportunities for Alaska businesses to get to Russia to check out possibilities for new business there. He said all of these things are preparatory. He said Assistant Commissioner Sedwick will discuss how the state is largely involved with a representative function and with developing Alaska's ability to enter specific markets. He said there is kind of a rough dividing line with a little healthy overlap. He said he wanted to emphasize the fact that we are basically talking about groups who are doing different things and supporting each other. Number 0696 MR. NEFF said he would call to the committee's attention a brochure put out by the university that illustrates the activities of the ACIB, the World Trade Center and the American Russian Center. He said one is involved with practical research and information, one is primarily involved with training and one is primarily involved in providing direct business services. He said if we were to start out with nothing and were to talk about what we needed for a good support of international business, we would end up with just those things; research, information, training and direct services. Number 0757 MR. NEFF said the ACIB was founded as a university activity in 1984 and officially sanctioned as a state of Alaska activity by the legislature in 1987. He said the legislation gave a mandate to ACIB; to promote Alaska's involvement in international trade, to do market research, to promote an understanding of other cultures, to set up public service programs relating to international trade and international activities and gave it the right to charge fees. He said the mandate also established a seven person advisory board which continues to function today. He said the board members are approved by the Governor and by the Board of Regents at the University of Alaska. He said the legislation also established an endowment. He said ACIB currently operates its activities at approximately 50 percent draw from the endowment and 50 percent draw from state general funds. Number 0845 MR. NEFF said, as director of ACIB, he coordinates all of these programs. He said the World Trade Center, the ACIB and the American Russian Center all report through him to the chancellor. So, from an administrative point of view there is coordination to make sure the resources of each of these organizations is spent wisely. MR. NEFF said the ACIB like any dynamic organization, tried out just about everything that was allowed under the mandate; public conferences, quasi-academic programs which were non-credit, longer term programs dealing with international trade, as well as other things. He said the ACIB staff is smaller, focused in its activities. It includes nine and a half persons focused on four professionals with a strong emphasis on research and services in fisheries, forestry, coal, hard rock minerals and the flow of international trade itself. He said ACIB is probably the premier place, in Alaska now, for collecting and disseminating information on international trade. MR. NEFF said ACIB has added other organizations under its umbrella. He said the World Trade Center originally started at Alaska Pacific University and came over to the University of Alaska Anchorage (UAA) in 1988. He said World Trade Center receives about 50 percent of its general operating funds from the university under the ACIB budget. The rest of its budget comes from membership fees. He said when you see the total that goes to the ACIB, a portion of that, $120,000 a year, goes over to the World Trade Center Alaska to support its basic operations. Number 0957 MR. NEFF said resources have been concentrated on specific industry research, on public information and specific industry information. He said ACIB has provided information to its users through traditional means. He said people have called up, wanted a report, things were taken out a data base and faxed. He said this system has worked quite well, and they have always been responsive to individual requests. He said ACIB now has a means by which anyone in and out of the state of Alaska can get information in a customized form. He said ACIB is not completely finished in putting all the data into their Web site. He said it is now possible to go into the internet and ask how many cans of red salmon went to Japan in 1994, or in what form did the salmon go there or how many tons of salmon went to Korea. He said you can ask the same questions of coal, timber and the flow of goods going through the Anchorage International Airport. He said a business can go in, get that data, download it into a spread sheet and create their own reports. Number 1131 MR. NEFF said ACIB has also converted one of their positions from purely research to a public services manager, who handles all major request. He said that person is trained as to what is available at ACIB, but what ACIB is providing throughout the state of Alaska. Number 1160 MR. NEFF said the ACIB is doing research that is largely industry driven. He said ACIB provided examples to the committee of reports that have been done for both the Taiwan and Chinese markets for Alaska Seafood. He said this is not just an economist report that says this is a possible market providing that so many people will eat this much salmon. The report says that if you want to sell salmon in China today these are the people who are importing it, this is how you get an import license, this is where you can find the freezer facilities. The report is practically developed to help that market develop. Number 1205 MR. NEFF said a kind of a salmon summit was being held today in Juneau. He said when the ACIB heard about it, the first thing they did was to collect information about it dealing with those issues, send it to them and tell them not to forget that ACIB is an information resource which can be used as strategies for the future are developed. Number 1225 MR. NEFF said all of these data sources are available somewhere else, in Russia, China or in the U.S. Department of Commerce. He said the ACIB effort is different because it takes the data into a form that is usable for Alaska, by Alaskan businesses and by businesses who want to do business in Alaska. He said the data is value added data because the way the form is displayed. He said when the U.S. Department of Commerce office reports back to Washington on many international trade activities, they use the data that ACIB has redone. Number 1279 MR. NEFF said the ACIB is involved in a broad public information project. The ACIB puts out regular publications that have become sort of standards for the industry; the Pacific Rim Fisheries Report which has 200 subscribers, the Russian Far East News which is considered by some to be the premier source. It has only one real rival on what is going on, particularly the developments on Sakhalin Island which will be important for the Alaska oil and gas industry. The International Trade Directory the other publication is a combined effort between he ACIB and a private business. Number 1325 MR. NEFF displayed a brochure for the North Pacific Rim Fisheries Conference and said he has never seen an activity started by a university that has become an international conference in such a short time. He said eight years ago ACIB brought together, for the first time, representatives of government, fishers and fish processing people and provided a chance for them to talk. The fourth conference was bid on heavily by Korea and Japan. He said when a planning conference was held in Seattle there were representatives from each of the six governments involved around the Pacific Rim. He said the conference will be attended by 250 people with ten different nations participating. The conference is now being sponsored by the government of Japan and the ACIB. Number 1412 MR. NEFF said he would now talk about the American Russian Center which is funded entirely by federal monies. He said the American Russian Center received its fourth grant from the Agency for International Development. Through those grants the American Russian Center has; founded and operated four small business training centers in the Russian Far East in Khabarovsk, Magadan, Yakutsk and Yuzhno-Sakhalinsk which put them as the first people on Sakhalin Island and a valuable resource as that develops, provided small business training programs for Russians and brought some of the best graduates to Alaska for additional training, provided internships with Alaskan businesses, sent Alaskan businesses to the Russian Far East to provide training on airport management, banking, road rebuilding, single family home construction and hair dressing. He said the center has increasingly brought Russian delegations to Alaska to find out more about what Alaska has to offer the Russian Far East. He said it is important to note that the Russian contribution to those trips has gone up and up, with about $400,000 a year being contributed now from the Russian side and growing each year. Number 1475 MR. NEFF said about $15 million in federal source grants have been received including two grants from the U.S. information agency which has sponsored 33 separate cultural exchange programs, training about 10,000 Russians. MR. NEFF said the center also had a program under the U.S. Agency for International Development called the partnership program that which linked universities together. He said this might be one of the most important contributions to Alaska. He said there have been direct linkages between Anchorage and Magadan in developing new business curricula. He said the UAA had the largest number of Russian students of any university in the United States. He said over the years the UAA will have an alumni association in the Russian Far East which will become the equivalent of those people who come through the Fulbright Program over the years. MR. NEFF said the university in Khabarovsk asked to be a part of this exchange. He said eventually, 20 Russians a year will have two summers in Alaska, taught the first three years of their programs with their fourth year in Anchorage and will receive American business degrees with the entire cost of that program being paid for by the Russians. He said the center has enough funding to continue through the middle of 1998 and hopes, via contractual arrangements, to continue after that. Number 1567 REPRESENTATIVE PHILLIPS asked if other states have business centers in the same communities that the Alaska Russian Center has. Number 1573 MR. NEFF said they do not in Yakutsk, Magadan. He said there have been attempts off and on, both in Khabarovsk and Yuzhno-Sakhalinsk, particularly Portland State University. He said the University of Maryland is active in Vladivostok and in Irkutsk and the University of Washington in Krasnoyarsk. He said the American Russian Center is the strongest and, in many ways, the only real continuing presence in the Russian Far East. Number 1599 REPRESENTATIVE PHILLIPS said people were bringing the Russian people to the Kenai Peninsula to do mine training and asked if this is done through the center. Number 1608 MR. NEFF said he would have to check that specific program as there have been so many groups. The center acts both as a facilitator and as a sponsor. He said his guess was that it is probably associated with the center in some way and he could look into it. The center sent a number of groups to the Kenai working with people down there, particularly on oil and gas technical training. He said Alaska's main export to the Russian Far East is going to be its expertise in oil and gas training and other areas. He said in the (indiscernible) training program which are being submitted to AIDEA, basic business training with infrastructure training focusing on oil and gas, transportation and communications to try to train Russian sectors to the point that they will be more capable of hiring Alaska businesses. Number 1689 REPRESENTATIVE PHILLIPS said this training is all well and good if we're getting paid for doing the training, that we are not supplying the training. She said she appreciated his comment that the American Russian Center is funded totally by grants and that by 1998 the Russians will be paying most of the portion of the training. Number 1679 MR. NEFF said that is the intent. He said infrastructure training is all based on the assumption that a high percentage of that cost will be paid for by Russian sources. Number 1687 REPRESENTATIVE PHILLIPS asked if this was our assumption and whether or not it was their assumption as well. Number 1689 MR. NEFF said it is their assumption because we are telling them that is the only basis on which we can operate. Number 1693 REPRESENTATIVE PHILLIPS questioned that if we don't give them the training for free and other states do, whether we will we lose out. Number 1699 MR. NEFF said this was not necessarily the case. He said the Russians are quite prepared to pay for the training, but want to be in on the planning of what it is. He said there are significant cultural negotiations that have to go on before you can have effective training. An example is that the Russians are still based on a full employment model. They would like to train lots and lots of workers, have five shifts instead of two. He said a compromise will have to be reached. It will not be as employment efficient as Prudhoe Bay right away, but the center will try to get them away from some of the inefficiencies that have characterized the previous system. Number 1728 REPRESENTATIVE PHILLIPS asked if the Russians feel that they have a closer cultural connection to Alaska than they do to other states. Number 1733 MR. NEFF said this is absolutely true. He said it is changing a bit, it is not the exclusive cache that Alaska used to have. He said when you introduce yourself as an American you get a different reaction than when you introduce yourself as an Alaskan because of the historic connections and because Alaska has had different experiences than they have had. He said he tells new Russians coming to Anchorage two things; it was founded the same year as the Russian Revolution and it was 70 percent destroyed in 1964. He said the Russians look around and see nothing comparable in the Russian Far East. Number 1770 REPRESENTATIVE KIM ELTON requested the budget data that was referenced by Mr. Neff. He said if he has a question on freezer space in Taiwan why couldn't he call OIT, why would he call ACIB. Number 1809 MR. NEFF said the two groups have different strengths and sometimes they will have more specific information on a few areas. He said ACIB works off what they already know, they get their information because they are asked by the industries to do a particular in- depth study. If ACIB has done it, then it is not necessary for OIT to do it. He said OIT will know of the existence of that report and it will become part of their information base. He said OIT is not set up to do the same kind of detailed analysis of market possibilities that ACIB does. He said ACIB is a research and information agency, whereas OIT is focused on developing market possibilities for particular businesses. Number 1847 REPRESENTATIVE ELTON asked if it was the mission of ACIB to develop market possibilities for individual businesses and industries. Number 1852 MR. NEFF said when ACIB works with a group such as a small niche market like reindeer sausage and antlers, where no one else was working with them, they become more deeply involved then they usually do. He said normally, aside from providing information about the possibilities, ACIB does not take the business and help them get into the market. Number 1874 REPRESENTATIVE ELTON said he has always been intrigued by the idea that budgets can provide a kind of market test for policy makers because the more receipts you receive from fee programs tends to indicate the value of your program to those who are willing to pay the fees. He asked how much of the program is based upon fees that are charged to people who use the services, how much is received vis a vis the endowment and how much from the general fund. Number 1903 MR. NEFF said he would not discuss how much is passed on to the World Trade Center, as that is separate. He said ACIB received approximately $330,000 from the general fund, $310,000 from the endowment and $247,000 from grants and other sources. He said most of what ACIB calls grants are in fact contracts for particular kinds of research services. He said these contracts come from the Alaska Seafood Marketing Institute or from reindeer herders in Kugarak. Part of it is a contract with the Institute for Social and Economic Research to do the Salmon Market Survey. He said these are funds coming in from outside sources, essentially fee for service. Number 1958 REPRESENTATIVE ELTON said he is more interested in how much Alaskan businesses and industries fund and pay for ACIB, not funded from other state or university organizations. Number 1978 MR. NEFF said the bulk of it comes to ACIB through the medium of organizations like the Alaska Seafood Marketing Institute. Number 1987 REPRESENTATIVE ELTON asked what groups are involved in the monthly round table discussions. Number 2010 MR. NEFF said it is the Alaska Center for International Business, the World Trade Center, American Russian Center, Division of Trade and Development of the Department of Commerce, the representative from the U.S. Department of Commerce, and AIDEA. He said there were others, but those groups were the principal participators. Number 2018 REPRESENTATIVE ELTON asked if there were any representative from coal and timber trade associations. MR. NEFF said that currently no one represents those groups in the discussions. Number 2027 REPRESENTATIVE ELTON clarified that OIT is the Division of Trade. Number 2033 CHAIRMAN COWDERY asked how many people work in the American Russian Center and if they are contract or state employees. Number 2041 MR. NEFF said they are paid through the university on contracts that make it clear they don't get any money unless the grants continue. He said, currently, there are seven people in Anchorage, six Americans in the Russian Far East and approximately 16 Russians in the Russian Far East. Number 2059 CHAIRMAN COWDERY referred to the recent contract and said, "Sakhalin that we have to represent that the Governor proposed to represent us -- what is -- our role or, or do you think that the background of this company is also representing other states maybe, would have been, in your opinion, better suited to have an Alaskan firm or company to represent us there." MR. NEFF said there are several alternatives and a decision has been made for the short run, only a few months. He said he expressed concern, before the decision was made, that we need to look out for Alaska interests first. He said these might be well served under this arrangement, but since it is an organization that receives its funding from elsewhere and has other obligations it is important to keep a close eye on it. Number 2107 CHAIRMAN COWDERY asked for the procedure to disperse funds to subcontract grants to the American Russian Center and others. Number 2125 MR. NEFF said ACIB does not do much subcontracting. He said he could only think of one instance where the American Russian House subcontracted in 1993 with a bank in Oregon. He said now there are banks in Alaska that will work with them. By and large the center works through programs which are operated 80 percent by center staff. He said, otherwise, they will have the participation of Alaskan businesses or government officials in Alaska who are providing training for airport managers or in banking. He said banks, primarily the National Bank of Alaska, will participate, at least to a certain extent, at their own expense. Number 2181 CHAIRMAN COWDERY asked, at the height of the training and travel, how companies were selected between Russia and Alaska. Number 2186 MR. NEFF said companies are not selected in the sense that the American Russian Center is not sponsoring a company for a business activity. He said the center will often have representatives from different companies go to a training situation. The center is almost exclusively involved with training. If the center is trying to help someone understand single family construction, companies who are involved with that type of activity are approached. He said the center typically calls different companies, tells them about the opportunity, ask them if they are interested and go with those companies interested enough to expend some money to do a training situation. Number 2223 CHAIRMAN COWDERY asked what percentage of ACIB's total public service and market research activities were conducted by the World Trade Center Alaska. Number 2231 MR. NEFF said the World Trade Center has had an agreement with ACIB to do some of its short term instructional activities such as; short term seminars, how to get an export license in Russia, obtaining a visa, or what opportunities for trade are available in Taiwan. He said this used to be a separate line item budget which is not the case anymore. The World Trade Center receives, from the general funds ACIB receives, approximately one-third of their money. Number 2279 CHAIRMAN COWDERY referred to a booklet titled, "State of Alaska Private Sector International Business Needs Assessment, dated July- October 1995," and read that, "ninety percent of Alaska exporters don't need or want government assistance for their export programs." He said if this is the case, why is the state spending money on export assistance and who is ACIB actually helping in this. Number 2290 MR. NEFF said he would have to reread that information. CHAIRMAN COWDERY said that also in the booklet, that the exporters that would seek help; 33 percent would seek private sector help, 23 percent would use the World Trade Center, 16 percent would use U.S. Commercial Service, 10 percent would use ACIB, and 6 percent would use the University of Alaska. He asked why the OIT and UAA have such a low public reliance factor. Number 2350 MR. NEFF said part of this might be due to confusion on the part of companies and individuals that their received information ultimate source is the university. He said a great deal of information ACIB generates is provided through the Alaska Seafood Marketing Institute. He said their data is the data that ACIB collects. He said there has not been enough of an attempt to allow the public, as a whole, to know everything that UAA has been doing. He said the World Wide Web site will do a lot to correct that. He said ACIB receives 1,600 inquiries a year which include walk-in people and telephone calls to which they provide direct assistance. Number 2391 CHAIRMAN COWDERY said back in the 13th Legislature he was co- sponsor of the legislation that created trade offices in Seoul and Taiwan. He said he has been over there many times. When he worked for the municipality in Anchorage, he received several calls from people who were looking for small businesses in the Pacific Rim or find out about small businesses. He said he put them in touch with some. He said it appeared that a lot of people are unaware of where to ask. He asked what the states role should be in international trade. Number 2444 MR. NEFF said the state needs a combination of interlocking services, similar to what it has now. He emphasized that he is not saying that it is the perfect mix or that the balance of support is the right one. He said the state does need some selective representation in certain markets. He said, because he has not studied it, he would not say whether what the state has now are right ones in the right proportion. He said Seoul and Taiwan, with their portions of the Alaska trade market, are places where Alaska ought to be represented. He said moving towards some type of representation in the Russian Far East makes sense because Sakhalin shows every indication of being a good market. TAPE 97-1, SIDE B Number 0000 MR. NEFF said it is important to help the connections between large scale sectors of Alaska business and their opportunities abroad. He said the university has a responsibility to bring people along to be ready to participate in the international market, partly in indirect ways through information, research and directly through individuals. He said the World Trade Center is part of that. It is specifically involved in trying to bring a kind of micro training and services to its members which will help them in the final stages of getting into the markets. He said, beyond that, there is an importance for Alaska to harness its financial resources through AIDEA, a combination between AIDEA and banks to get some development capital that has an Alaskan name on it in these particular markets. MR. NEFF said ACIB has tried, in the Russian Far East through a lending organization set at the national level by the United States government to get rather small amounts of money out on the street for those people to get into new entrepreneurial situations. he said this program is not going very well. He said there have been numerous conversations with various Alaska banks. Number 0031 CHAIRMAN COWDERY said Alaska has very few people and lots of resources and the Pacific Rim area has just the opposite. He said it is logical that we are a natural trading partner with those countries. He said the companies involved with the bigger resources; oil and gas, hard rock minerals deal directly with companies abroad. He said there are just as many smaller businesses in the Pacific Rim and that this is an area to develop. He said businesses need and want business information. Number 0079 MR. NEFF said he would call disseminating information a form of assistance. He said it is necessary to get the word out there about what information and resources are already available. He said when a business does come to the World Trade Center or to the Alaska Center for International Business they are helped to find that niche market which will allow them to sell those goods. Number 0110 CHAIRMAN COWDERY asked approximately what percentage of ACIB is conducted in response to a companies request. He asked if ACIB maintained a staff specifically for these requests. Number 0118 MR. NEFF said two and a half people are involved with research. One staff person is working almost exclusively in the fisheries area, another is a specialist in SouthEast Asia in timber and one is a kind of generalist. He said ACIB is close to 100 percent in responding to industry or government agency needs for research in these areas. CHAIRMAN COWDERY asked if it was industry that makes these requests. MR. NEFF said it is primarily industry. Number 0162 REPRESENTATIVE PHILLIPS referred to Mr. Neff's testimony that ACIB does not conduct basic research and asked him about his comments that he has people involved in research. Number 0170 MR. NEFF said the research they are doing is not academic research which identifies a broad problem. Number 0181 CHAIRMAN COWDERY asked how many investment proposals were completed last year and what methods were used to track the success rate. Number 0191 MR. NEFF said he would get the exact number to the committee. He said an informal system is used. Once a company gets talking with ACIB, they are asked if they have used the research and how its been helpful to them. He said ACIB uses this information in doing the next round of research. Number 0221 JAMES McMILLAN, Deputy Director of Credit, Alaska Industrial Development and Export Authority (AIDEA), was next to testify. He said he has been with AIDEA since July of 1996. His primary responsibility is management an oversight of AIDEA's credit programs (indiscernible due to papers over the microphone) revenue bond program are tax exempt and taxable, umbrella bond program, business assistance program and export assistance program. MR. McMILLAN said AIDEA has had an export assistance program in place since 1987. That program provides a guarantee to banks who extend both pre-export and post-export financing. To date it has not issued any guarantees under this program and to the best of his knowledge there have not been any requests to do so. Number 0315 REPRESENTATIVE PHILLIPS clarified that he said there have been no requests or money given out since 1987. Number 0324 MR. McMILLAN said AIDEA is well aware of the lack of success of this program and are attacking it on three different fronts in attempts to find solutions. Before he talked about these attempts, he discussed reasons why the program has not been successful. One reason is timing. While Alaska has been exporting for many years, AIDEA thinks the majority of those exports have been accomplished by large companies, sometimes national firms, who are experience exporters that either don't need financial assistance or have established relationships with outside banks that can meet that need. He said AIDEA also thinks, to some degree, that there has been a reluctance on the part of the banking community to get involved with export financing, although there is beginning to be a change in that area. The rising interest in the Russian Far East has in itself been a problem for the program. The lack of political and economic stability in Russia has led to a hesitancy to commit financial resources to that area. For example, the Export-Import Bank of the United States (Ex-Im Bank) publishes a Country Limitation Schedule indicating which countries and which sectors in those countries are open for business with Ex-Im Bank. This business of Ex-Im Bank includes export credit insurance which is a requirement of AIDEA's current export assistance program. Until November of last year, all business in the private sector was closed to the Ex-Im Bank. Businesses in the public sector was open only if the transaction had the full faith and credit of the Russian government behind it. Once again, that is beginning to change. He said AIDEA is now finding more of an interest on the part of the banking community to provide export assistance and the Ex-Im Bank is now open for business in the private sector in Russia. MR. McMILLAN said as he mentioned earlier, AIDEA is taking steps to find solutions to their problem. First, AIDEA has met with the banking community to seek their input on what changes they think need to be made in order for the export assistance program to become more viable. Second, AIDEA has sought alternative programs which meet the financing need of exporters. Specifically, late last year AIDEA completed the necessary training to become a city/state partner of the Ex-Im Bank. As a city/state partner AIDEA provides local access to the Ex-Im Bank programs which include among others; export credit insurance and working capital guarantees. Finally, AIDEA is in the process of reviewing successful export finance programs already established in other states. By utilizing that information, along with the input AIDEA has received from the banking community, it will be prepared to recommend changes to our export assistance program in order to make it a more viable program. He said AIDEA is confident that this approach will be successful. MR. McMILLAN said two personnel within AIDEA, including himself, dedicate a portion of their time to export assistance. The other individual, Katelyn Ohmer, is the Economic Development Specialist who dedicates a good portion of her time to the area of export assistance. The remainder of her duties include marketing and public relations, responding to inquiries about AIDEA's mission and programs, legislative liaison and monitoring budgets for projects and assigned programs. MR. McMILLAN said AIDEA is also pursuing other means to become a more visible player in the export arena. He said AIDEA fully realizes that visibility and education are important ingredients to their success. Along these lines, AIDEA is an active member of the International Business Round Table. MR. McMILLAN said, through the assistance of the Department of Commerce and Economic Development (DCED) Deputy Commissioner, Debbie Sedwick, this group recently executed a "Memorandum of Understanding" which took place in October of 1996. He said this really sets the path for a cooperative and unified effort to provide export assistance and develop programs and projects which will help each member to achieve their goals. Currently, AIDEA is working on development of a series of seminars for the banking community and exporters which would outline the various financing programs available through the Ex-Im Bank. This program should get off the ground this spring. MR. McMILLAN said he was invited to become a member of the Finance, Insurance and Taxation Subcommittee of the Alaska-Sakhalin Working Group and will be speaking at the groups next meeting on January 31, about the Ex-Im Bank programs. MR. McMILLAN said that while AIDEA is confident that all these efforts will lead to a more successful and well rounded export assistance program, they are actively working with a couple of banks and exporters on projects to assist them in their exporting needs. One involves a business which exports goods to the Russian Far East and is in need of export credit insurance to finance their receivables. The other project involves a guarantee of a line of credit extended by a local bank to a bank in the Russian Far East. The line is used to confirm letters of credit issued by the Russian bank to their customers who would become buyers of goods and services exported from Alaska. The letter of credit has been the most used means of financing up to this point. In addition, AIDEA is working with a large company in the petroleum industry to assist them with export financing through the Ex-Im Bank. MR. McMILLAN said in summary, AIDEA's short term goal was to emphasize the Ex-Im Bank programs for financing of Alaska's exporters. He said AIDEA believes these programs provide the means and flexibility to assist Alaskan Exporters. He said the long term goal is to review and revise AIDEA's program to better serve the needs of the banking community and Alaska's exporters. As part of this goal, AIDEA is looking to establish co-guarantee programs with the Small Business Administration and the Ex-Im Bank. A co- guarantee program would allow AIDEA to leverage their program and reduce the risk. It would also provide better flexibility with their financing program. Number 0661 REPRESENTATIVE PHILLIPS asked if any previous legislative body examined this program or has the management of AIDEA looked at this program. She asked why nothing had been done. Number 0683 MR. McMILLAN said as far as the management of the authority is concerned they have examined it. They met with the banking community and with some of the organizations to try and find out why the program was not being used. He said there are some problems with the program structure. Number 0702 REPRESENTATIVE PHILLIPS asked if any attempts were made to correct those problems so that it could be a program that people could use. Number 0704 MR. McMILLAN said, looking back in the history of the files, it appears that this effort took place around the beginning of 1994. He said, to the best of his knowledge, other than some of the things mentioned such as forming alliances with other groups, there doesn't appear to have been any direct effort at changing the program yet. Number 0731 REPRESENTATIVE PHILLIPS asked if a major oil industry company went to the Ex-Im Bank for financing if they were fitting under this program or were they fitting under a different authority guarantee are ... Number 0740 MR. McMILLAN said, no, as a city/state partner AIDEA is somewhat like an agent of Ex-Im Bank and can provide local access. He said AIDEA will be working with the company to utilize the Ex-Im Bank programs. He said especially now that the Russian Far East is open for business in the private sector, he believes that Ex-Im Bank programs will serve the majority of the Alaskan exporter's needs, both small and large. He said the program, as it is currently structured, has a maximum guarantee of $1 million. Number 0783 REPRESENTATIVE PHILLIPS questioned whether a program that was in place that nobody could, would, was required or is was going to utilize would it be his recommendation to just get rid of the program. Number 0793 MR. McMILLAN said no he would not. He said AIDEA is in the process of conducting a survey to find out specifically what the financing needs are of Alaskan exporters. REPRESENTATIVE PHILLIPS asked if this was identified in the report done last year. MR. PIGNALBERI said it was addressed, but not comprehensively. REPRESENTATIVE PHILLIPS asked if Mr. McMillan was involved in that report. MR. McMILLAN said no he was not. He reiterated that he just began working for AIDEA in July of 1996. He said he has read through that report. He said it does address the area of financing, but he did not believe it provided some of the information that AIDEA was looking for in order to provide the education needed for exporters and the banking community. MR. McMILLAN returned to the earlier question and said the bottom line should be that we give financing assistance to Alaskan exporters. He said if this can be done through utilization of the Ex-Im Bank and if it really serves all the needs of both the banking community and the exporters, then he would suggest that the state utilize that program. He said if AIDEA can create or revise their program so that it filled in some of the holes that are not being covered by the Ex-Im Bank program then he would suggest that AIDEA do that. He said a duplicate program should not be kept for the sake of having a program. Number 0878 REPRESENTATIVE PHILLIPS asked when he anticipated having an answer to that question. MR. McMILLAN said he hoped to come to a conclusion by the middle of this year. He said he is looking at programs in other states to try and find out what the differences are between their programs, our programs, how they are leveraging Ex-Im Bank, and what they find. He said he realized that the needs of exporters from other states are much different than those of Alaskans. Number 0903 REPRESENTATIVE PHILLIPS recommended that sometime during the middle of the interim the committee follow-up on this issue by getting an answer. She said if we have a state program in place that isn't workable, no one has used it in the past ten years, then let's look at getting rid of it. Number 0921 CHAIRMAN COWDERY said that is the basic purpose of these committee meetings. Number 0925 REPRESENTATIVE ELDON MULDER said he believed that Senator Kelly sponsored legislation changing the name of AIDEA to include the export authority. He said he would look into why the export program was needed in the first place. He said he believed Commissioner Tony Smith was advocating it. At that time Alaska was in a recessionary period and the commissioner might have been looking to stimulate exports. He said he did not feel that the export program is not such a big problem as not much time or resources have been spent on it. He said the bigger question is how can we revise it to actually make it workable. REPRESENTATIVE PHILLIPS said if we have state employees identified in that program with their salaries being paid for by that program and the program is not doing anything. MR. McMILLAN said he and one other staff person have a portion of their time dedicated to export assistance. REPRESENTATIVE MULDER said the staff works in a multitude of areas, without an export specialist per se. He said a statute might need to be revised, to make it more applicable and user friendly if it is not possible to do this then at that point we should discard the program. MR. McMILLAN said he did not want to diminish the fact that for whatever reason the program has not been successful. He said the program has not been utilized. He said, in his opinion, the program is directed towards small businesses and when the program was created there was not a lot of small businesses exporting. He said there might have been a lot of businesses that had an idea that they might want to get into business and export, but neither this program or the Ex-Im Bank program is for the total novice. He said there is a higher degree of risk when you start doing business in a foreign country as compared with doing business within the United States. He said this is part of the problem. He said timing is also an issue. MR. McMILLAN said AIDEA has looked at the statutes, at the regulations and at this point, without making any commitment, if AIDEA feels it can create a program that will compliment Ex-Im Bank it will take some legislative change. REPRESENTATIVE MULDER said at the time of implementation of the program, the banking industry was struggling with only two institutions on solid ground. Those two banks were not lending to anybody without 70 percent equity. MR. McMILLAN referred to his 20 years experience in the Alaskan banking industry and said that when someone came in and said they wanted financing to export goods or services overseas you did everything you could to shift the subject. He said sometimes when banks did financing for businesses that were exporting, it was treated like it was a loan for business done in Alaska. He said some of it is just misunderstanding on the part of the banking community. He said this is why we need to educate the banking community and the exporter. MR. McMILLAN said that when you look at the changes in the banking community, with kudos to the National Bank of Alaska because of their support for export assistance, some smaller banks were not geared up for export assistance, others have offices outside which provide assistance but refer the customer to their Seattle office. Number 1205 REPRESENTATIVE PHILLIPS requested a copy of Mr. McMillan's comments. Number 1208 CHAIRMAN COWDERY asked when the comparison with other state programs will be done. Number 1218 MR. McMILLAN said he was in the process of drafting a letter that will go out to the different states that have some type of export authority or export assistance program. He said the timing involves getting the letter out and getting the responses back. He said the letter will be very specific in what AIDEA is requesting so that it could be a comparison of apples to apples. He said he would hope to complete this around the mid-year. Number 1250 CHAIRMAN COWDERY referred to an example of when he worked for the municipality of Anchorage. He said a company asked for export assistance for some water products to Korea. He said the answer they received was to let a bank package their proposal and then AIDEA would see if they could help. He said this was a small company and would have liked to have had some assurance before they did the paperwork. Number 1295 MR. McMILLAN said it is a fine line that the export authority walks. They try not to confuse the private sector, primarily the banking community. He said the last thing the program wants is to move in front of the banks and take away their customers. He said the authority is always receptive to questions and inquiries from perspective business people who need assistance from AIDEA. He said AIDEA always offers them the caveat that they are not in the business to do direct lending. The program can provide them assistance, help them along, make them feel like there is something there that they have got to work with and then ask them to contact their local bank. MR. McMILLAN said as a certified city/state partner, the authority has the obligation to directly provide those services to the banking community and the exporters. He said hopefully you will not find an incident like the one mentioned in the future. Number 1412 JOSEPH L. PERKINS, Commissioner, Department of Transportation and Public Facilities (DOT/PF), was next to testify. He said most trade matters require some type of transportation and his department provides and operates the infrastructure in the state of Alaska to make this possible. He said this is particularly true of the Alaska Marine Highway System which is delivering people to the state every day and with the international airports. Number 1494 KURT PARKAN, Deputy Commissioner, Office of the Commissioner, Department of Transportation and Public Facilities, said he had some brief comments and provided handouts to the committee. He said part of the mission of the airports, which include both the Fairbanks and Anchorage airports, is to promote cargo, passenger air service and related activity to the economic benefit of the state of Alaska. He said the airport marketing strategy is to identify and promote air service development opportunities on both a carrier by carrier and on an industry wide basis. He said generating cargo related activity is aimed at capturing the trans- Pacific as well as the European business, a rapidly growing sector. The activity is also aimed at competing on a world wide basis. Number 1578 MR. PARKAN said airport funding is through the International Airport Revenue Fund which is an enterprise fund of the state of Alaska, established in 1961. He said the airports are independently funded from the general funds, but the general fund does not contribute to the operations of the airport. He said all capital debt service costs are generated through the International Airport Revenue Fund in addition to what is received from the Federal Aviation Administration (FAA) in terms of capital improvement projects. Number 1610 MR. PARKAN said the marketing budgets, for the past several years and proposed for this year, are $400,000 for Anchorage and $100,000 for Fairbanks. He said approximately 50 percent of the Anchorage budget and 70 percent of the Fairbanks marketing budgets are for ongoing international projects. He said, in terms of personnel dealing with marketing, there are two positions at Anchorage under the development manager. One is currently filled and one is to be filled. Both of the efforts in Anchorage and Fairbanks are combined with the economic development corporations of those respective cities. He said, in Fairbanks, the full amount of the marketing money goes to the Fairbanks Industrial Development Corporation. In Anchorage a portion of the budget goes to the Anchorage Economic Development Corporation (AEDC) for specific projects, approximately $100,000 to $120,000. Projects that they are currently working on pertain to international markets. Number 1705 MR. PARKAN said the state is seeing a growth in both international cargo and passenger trends at the airports. Anchorage is number two in the United States in terms of gross landed weight and Fairbanks is number seven. The state has received from the United States Department of Transportation (US DOT) expanded cargo transfer rights last fall for increased traffic rights for foreign carriers. He said this will generate a considerable amount of growth at the international airports. It will allow international cargo carriers to do more than just land and fuel, they will also be able to fuel, transfer cargo to other carriers, to hub, and to continue flying through to the lower 48 from the Asian markets. He said these traffic rights exclude Japan and United Kingdom carriers for now, but the state is hoping to get them included. He said those countries are currently excluded as there are bilateral negotiations going on that are much bigger and broader than what the state's specific request was for. He said these rights are for one year at a time, but the state will apply for an extension. Number 1852 MR. PARKAN said this decision of the US DOT has created a considerable amount of interest in third party developments. He said there are people who are clamoring to come to the airport and set up warehousing operations and hubbing operations. MR. PARKAN said DOT/PF is participating in the Governor's Pioneer Incentive Program which is attempting to get direct passenger flights from Japan to Anchorage or Fairbanks. He said this effort involves the Department of Commerce as well as AEDC, the Anchorage and Fairbanks Visitor and Convention Bureau, AIDEA is also involved because of their financing view of the world. Hopefully they will package some type of an incentive to bring a carrier on at least a weekly basis to Alaska from Japan. He said the commissioner is chairing the committee with Debbie Sedwick from the Department of Commerce and Economic Development. Number 1923 REPRESENTATIVE MULDER asked if any carriers have expressed interest. Number 1937 MR. PARKAN said DOT/PF has identified a couple of carriers that have some potential. He said subcommittees are working to get that interest increased. He said hopefully within the next year there will be announcement from somebody to come here. He said right now the focus is on Nippon Airways and NorthWest. He said it is unclear which city out of Japan will be able to provide the direct flights, Tokyo is pretty tied up. Number 2003 REPRESENTATIVE PHILLIPS repeated that the Pioneer Incentive is offering $1 million to an airline company willing to come from the Orient and asked where that money was coming from. Number 2033 COMMISSIONER PERKINS said the committee is looking at several sources of revenue, with at least half of the money coming from the private sector from such organizations as the Anchorage Visitors and Convention. He said another source that is being sought for the other half of the money. He said the committee might ask the state, but it has not been decided. The subcommittee will exhaust all other possibilities before doing so. He said AIDEA is on the committee and they are the financial people working to get the incentive money. Number 2082 COMMISSIONER PERKINS said this incentive money is not cash payments. What is being discussed is a marketing effort for the airline to come to Alaska. Number 2116 REPRESENTATIVE PHILLIPS clarified that it is not a direct cash payment and you are looking at marketing and asked if it would be price reductions on marketing efforts or what other kinds of things are they looking at. Number 2138 COMMISSIONER PERKINS said the money would be directed to marketing that flight. Another thing being looked at is people who are beneficiaries of this service. For instance, the potential of Alyeska blocking off so many seats. He said there are several ways that these incentives can be formed. Number 2195 MR. PARKAN said the subcommittee working on that feels that more than $1 million could be generated, particularly in the private sector. He said $1 million was not the magic number, it was the minimum. Number 2229 CHAIRMAN COWDERY asked if there would be any ripple effects from other airlines that did not receive incentives to come to Alaska. Number 2243 COMMISSIONER PERKINS said the committee has not received any comments as this is a special circumstance, it is for international flights and currently Alaska does not have any international flights. Number 2266 REPRESENTATIVE PHILLIPS asked if there was a stipulation that the flight had to go to Anchorage, or if it could go to Fairbanks. Number 2284 COMMISSIONER PERKINS said it could go to Fairbanks, but realistically it would probably go to Anchorage. He said Fairbanks is heavily involved with the task force because many of the passengers that come in from Japan go to Fairbanks, especially in winter to see the Northern Lights and visit the hot springs. He said there are benefits to Fairbanks even if the flight terminates in Anchorage. Number 2372 CHAIRMAN COWDERY said the airport is proposing a 3 percent head tax on passengers to pay for a new terminal building and asked if this was correct. MR. PARKAN said the airports had proposed to Legislative Budget and Audit (LB&A) the approval of a passenger facility charge. He said if it looks, feels and smells like a tax you can call it a tax, but Congress specifically said that it wasn't a tax but a user fee. He said the passenger facility charge would be $3.00 for deplaned passengers at Anchorage and Fairbanks. That money would be used to fund identified capital improvement projects. TAPE 97-2, SIDE A Number 0000 MR. PARKAN said there were very good discussion comments from the public with concerns expressed by people who felt that it would place a burden on them. He said the subcommittee would put out a report to the full committee with recommendations. He said they felt it would be more appropriate for this discussion to take place before the full legislature, so DOT/PF decided to withdraw the request for LB&A to do the fund source shift from FAA funds to Passenger Facility Charges (PFC) and wait for the report to come out from LB&A. At that point, take a look at what the report said and then decide at that point whether or not to go forward. He said no decision has been made to continue with PFCs. He said, when the report comes out, DOT/PF can discuss with the legislature what the mutual interest is in PFCs. MR. PARKAN said PFCs are used throughout the country, they are charged every time you go through Seattle or through most of the major airports in the U.S. He said it is a fund source that helps diversify the revenue the airports receives to meet their capital needs. He said the capital needs, especially at the international airports when they are expanding, far exceed the ability to pay for them with revenues. He said the federal AIP program makes it difficult. He said DOT/PF has recently been notified that the Administration is proposing a $1 billion AIP program for next year, currently it is $1.46 billion. He said this would make a 30 percent reduction in funding for capital programs. He said right now almost all of the capital projects are funded through Airport Improvement Plan (AIP) with match and some smaller projects funded through the revenue source. MR. PARKAN said the alternative to PFCs would be to not do the projects or finding some other revenue source such as bonds or increasing airport fees which could have a rippling effect on passengers. Number 0251 COMMISSIONER PERKINS said any of us that fly out of state are paying this fee anyway. He said the additional charge would be for intra-state travel. Number 0302 REPRESENTATIVE PHILLIPS said she would like to get back to the issue of airports and their role and in international business. She said she wanted to commend the Anchorage airport on the briefing given to the legislators. She said it was good to see the growth that was occurring and the development plans. Number 0347 REPRESENTATIVE PHILLIPS asked if there was a direct relationship with the World Trade Center, the Center for International Business, the American Russian Center or if the airports worked just with the DOT/PF. She asked how they were tying in international business expansion at the airports with what we see as international trade in Alaska. Number 0396 MR. PARKAN thanked her for her comments. Number 0437 MORTON PLUMB, Director, Anchorage International Airport, Department of Transportation and Public Facilities, was next to testify. He said the airport deals directly with the World Trade Center on trade information. He said, as far as the overall business picture in Anchorage is concerned, the airport works very closely with the municipality, AEDC, and AIDEA. He said the airport has formed sort of a troika with AIDEA and AEDC for their marketing effort. He said, in that regard, the airport works directly with other agencies that are promoting business. MR. PLUMB said the Anchorage airport has what they call their personal shopper who assists perspective customers work their way through the bureaucratic process of trying to find out information in case they choose to develop there. He said, in addition, the municipality has committed themselves to a similar process and the airport tries to link up so that the airport is user friendly to the customer. He said the airport coordinates very well between the various organizations. Number 0535 REPRESENTATIVE MULDER referred to a DOT/PF subcommittee which talked about re-evaluating the international concourse as it was not being utilized to its full capacity. He said it was felt there was growth at the national market and to adding the concourse to the domestic terminal. He asked what the future was for the international concourse. Number 0594 MR. PLUMB said there was an effort a few years ago to convert some of the international terminal. He said once you spend capital to reduce capability you then limit what you can attract there. He said many people in Anchorage do not have the opportunity to see how busy the international terminal is. He said at 1:00 a.m. there is no room to park any more airplanes. He said what is indicative of that is the duty free concession which provided somewhere between $108 million and $117 million gross which provided (indiscernible due to coughing) a year. He said this had a sharp decline bottoming out somewhere in the 1994 time frame to where the gross is $7 million and probably less than $1 million to the airport. Number 0643 MR. PLUMB said last year the duty free grossed close to $14 million, almost $6 million greater than the initial bid came in. He said he believed the international traffic is on the upswing. He felt it would probably be a mistake to spend capital to change that. He said the airport might get a synergy as they see more cargo coming. He said 60 percent of cargo is carried in the belly of passenger airplanes. As the airport sees with EVA airlines, they are currently flying what they call 747 COMBIs with passengers in the front and the cargo in the back. Number 0708 MR. PLUMB said this might become more lucrative as the hub concept is developed. He said as a result of the relief received from the U.S. DOT, not only was more cargo flexibility but the opportunity to do what they call change a gage and starburst. Effectively, what that will do is it has the potential to increase the yield and that is the bottom line. The airlines will be able to hub and sort internationally which is very similar to what UPS and FedEx does today on the domestic market. MR. PLUMB said this might allow someone like Korean Airlines, to stop at Anchorage and then go over to Frankfurt on a large airplane such as a 747 which could hub smaller airplanes such as a 727 as long as they had traffic rights to go down to Seattle, Los Angeles, or San Francisco. While the larger aircraft heads over to Fairbanks with its cargo, takes the fee from the other three small airplanes that came up, loads up the 747 and goes back to Korea. As the airport sees it that area might become very attractive to other airlines such as KLM which also has COMBIs. They might start bringing cargo in and put some passengers in the front end. If passengers come, then there will need to be a place for them to disembark. MR. PLUMB said Representative Mulder was correct but he hoped the airport would increase their traffic. He said they were up 20 percent which he said is easy to do when you have a very small number. He said the airport feels there is a better alternative then converting that space. Number 0810 REPRESENTATIVE MULDER commented that the airport had sunk to a very low point on the international level. He asked at what point in time you pull the plug and say that the long range plans, the efficiencies and the routes are not going to produce a direct route between Japan and Alaska. Number 0878 MR. PLUMB said the Anchorage airport has been working that effort for some time and said it appears that they are getting pretty close, it is a matter of the bottom line. He said the airport knows for a fact because they have done the studies, that the route analysis will show a positive in the black revenue. He said the issue is airframe availability. For example a company such as NorthWest with a DC 10 has a revenue flow between Los Angeles and Heathrow that is greater than it would be between Norito and Anchorage. Therefore, they have done the route analysis and that the Norito/Anchorage route would not make as much money. He said as the economy grows, as we get greater airframe availability then the airport will get them as customers. He said the airport watches to see what companies are buying large aircraft. MR. PLUMB said he feels that NorthWest will start summer air traffic between May and September, 13 flights occurring once a week. He said the Pioneer Incentive would ask for a period of two years which would bring the amount offered $500,000 a year and it would not be spent until someone commits to that route. He said the airport would not pull the plug on the effort because they are not paying any interest on the money and are receiving advertising as a result of it. He said the airport would continue offering the incentive for at least another three years before pulling the plug. He said this is just the airport's side of it and it would also depend on what DOT/PF and Fairbanks want to do. Number 0997 CHAIRMAN COWDERY asked what the benefit dollars were of a jumbo jet landing. Number 1011 DOYLE RUFF, Manager, Fairbanks International Airport, Department of Transportation and Public Facilities, was next to testify. He said a detailed analysis was done to determine economic impact. He said one 747 landing once a week for one year is just a hair under $1 million direct spending in Fairbanks. He said the bulk of that is to the fuel supplier. The rest of it is in fees to the airports with the direct fee being $1,400 per landing between the fuel flowage fee and the landing fee based on the gross weight of the aircraft. He said the other direct spending income is to the ground handlers, the food suppliers, hotels and the other dragon's tail of support services. He clarified that he is talking about cargo traffic as there is no international passenger traffic that is occurring now. Number 1084 REPRESENTATIVE PHILLIPS asked how many cargo flights on a weekly basis are landing in Fairbanks. Number 1090 MR. RUFF said there are 23 to 25 flights on a scheduled basis. Number 1098 REPRESENTATIVE PETE KOTT referred to the Pioneer Incentive Program and asked if any firm commitment had been given to the $500,000 trying to be raised by the private sector. Number 1121 COMMISSIONER PERKINS said there appeared to be a firm commitment with the Anchorage Convention and Visitors Bureau. He said others are close to being committed. He said that nothing will be committed until the deal is signed for two years. Number 1169 MR. PARKAN said the folks that are going to be committing money will be sitting down at the table during negotiations with the carrier to decide what their commitment is going to be. He said it is hard to say how much until we sit down with the carriers. Number 1185 REPRESENTATIVE KOTT asked if there were competing interests out there in some of the other Western states that offer the same type of incentive program. Number 1195 MR. PLUMB said Memphis spent a considerable amount of money, as much as $5 million to try to get KLM in there by putting up a couple of international gates. He said the Port of Seattle spent approximately $10 million to buy some buildings from NorthWest, NorthWest in turn leased them back for around $70,000 a year. He said eventually the port is going to need that. He said some large expenditures are spent just trying to attract carriers in there. He said, in Seattle, the deal was to start a Hong Kong twice weekly flight, going up to three times a week. He said there is a reasonable precedent to set up some sort of incentive. Number 1253 MR. PLUMB said the airport is getting the byproduct of this as they have been in Aviation Week and other publications. He said it has just been marketed around the world and they haven't spent that much. He said this has not been the intent, but have gotten more out of this proposal then has been spent so far. He said, realistically, no one is going to make a deal for $500,000 a year. Japan Airlines was bleeding to the tune of $1 million a day and $500,000 can be lost over two flights. He said no one is going to make a deal to fly here for two years for $1 million, the economics do not work that way. Number 1300 REPRESENTATIVE KOTT asked if the airlines were required to stop over in Alaska or if it was the final destination. Number 1311 MR. PLUMB said if it is a domestic carrier that can come from Norito to Anchorage unload, pick up passengers and continue on to Minneapolis. He said this is the probable scenario as this is the closest deal right now. He said if Japan Airlines or ANA coming out of Norito, Osaka, Nagoya or Chitose and stopped at Anchorage and could not pick up passengers, there would not be much incentive because they would in fact be losing revenue as that seat would be vacant. He said for internationals it would have to be a turn around and for domestics it did not matter. Number 1366 REPRESENTATIVE KOTT asked if there was an dialogue occurring with the state's federal delegation to perhaps open up the opportunity for those foreign carriers to pick up traffic here on their destination to wherever. He also asked if there was an ongoing dialogue that would offer some type of relief concerning visas. He said those passengers coming over could get off and spend four or five days benefitting the small mom and pop shops in the Anchorage or the Fairbanks area. Number 1399 MR. PLUMB said there has been a considerable effort for the visa waiver program, especially with Korea. He said the Administration here in Alaska as well as the delegation in Washington has been supportive of this. He said there have been some strong opponents of this, people who are fearful of having people come over and stay longer than they should. He said there is not a great potential that this will happen in Alaska, but is would be a potential down in the Lower 48. He said, "with the other area, I'm not sure if the delegation's been contacted or not. I yield to Deputy Commissioner Parkan." Number 1445 MR. PARKAN said in terms of contacts with the delegation concerning opening up rights for international carriers, he knows that there has been an expressed interest by the delegation regarding bilateral negotiations. He said a lot of this centers on the Department of State negotiating a deal with Japan. He said the state is interested in, but not at the table concerning, the negotiations of the bilaterals. Number 1493 MR. PLUMB said this is a very technical area and right now they are seeing a lot of bilaterals. He predicted that it will go into a more multi-lateral and eventually open skies. He said if they go to open skies then they won't have to go through all of these negotiations. He said there is so much with regard to quid pro quo as we go through these bilateral negotiations. He said they start very close to those on a weekly basis. He was just talking yesterday with Ed Oppler, a chief negotiator with the U.S. Department of Transportation who just informed him that Singapore will probably have open skies in the near future. MR. PLUMB said the airports make their intentions known to them through telephone contact and through the Airports Counsel International. He said everyone has the same objective, but the U.S. doesn't want to give away something that would reduce the negotiating position with regard to leverage with a country holding the U.S. hostage either by not permitting one of our carriers to operate freely there or by charging them what could be considered an exorbitant amount. He said this area of negotiation usually stays on the U.S. DOT and State Department side as opposed to getting tied in the legislative side. Number 1564 REPRESENTATIVE MULDER asked how the state compares with other airports along the West Coast. He asked if the route decision was based on money or were other factors considered regarding both cargo and passenger service. Number 1585 MR. RUFF asked if he was primarily speaking to what it costs a carrier, whether it was are passenger or cargo carrier, to operate in Alaskan airports as compared to airports on the West Coast. Number 1604 REPRESENTATIVE MULDER asked how the state was competing, are we at an advantageous position. Number 1612 MR. PARKAN said Alaska has an ideal location so the state competes very well, particularly in terms of cargo traffic but also international passengers to a certain extent. He said location is a considerable factor. He said the landing fees are comparable to other West Coast airports. Number 1641 MR. PLUMB said location is important, but not everything and pointed to the fact where passenger traffic technology can change. He said it is imperative that the state take this opportunity to capitalize on the globalization of the aviation industry. He said there is an emerging market in the Pacific. As we see that grow there is going to be a great thirst to go ahead, locate, build infrastructure and do things. He said it is like water seeking a level, if the state does not exercise the opportunity at this time or take advantage then other markets will be found such as Petropavlovsk, Khabarovsk, Vancouver or Edmonton. He said while the economics might not be exactly right, the state must take advantage of it at this time. Certainly we must do this in the cargo area. MR. PLUMB said the reason for the advantageous position is because of location. He said the cargo carriers work on very, very small margins. He said you have the next day products such as overnight mail which yield $16 to $17 a pound. He said when you start to get to what is considered the "bottom feeders" you might be getting down to .60 cents, .70 cents or even $1 a pound which creates margins that are very close. He said if you can stop in Anchorage with 68,000 pounds and save 68,000 pounds of fuel, that means you can upload 68,000 pounds of cargo. He said, done on a daily basis, this adds up to millions of millions of dollars in the long run. Number 1729 MR. PLUMB said the passenger side is different because the load is not as important. He said when we travel we like to get from Point A to Point B with very little interruptions. He said it is going to be very tough to get into the passenger market. He said if it can be tied into the cargo side, Alaska will become more attractive. Number 1777 MR. RUFF said the rates and charges to the air carriers are very favorable, be they passenger or cargo, be they international or domestic, compared to other major airports such as Vancouver or airports on the West Coast. He said for all cargo the Anchorage airport ranks number one and Fairbanks then moves down to number 37. He said those positions tell us how we are doing in those areas. He said during the heyday of the duty free concession the state was guaranteed an income of $14 million. He said the international traffic went to zero, but it is now slowly building back up. MR. RUFF said, on the domestic passenger side, Alaskans enjoy being a heavily targeted tourist destination with steadily climbing passenger traffic. He said the state must cover every base to the time that Russia might be a competitor with Alaska. He said that is why the runway extension projects at both airports are so important, to keep this international business. He said we must continue to pursue these areas to continue to do well into the future. Number 1900 MR. RUFF said everything about servicing in Russia, from the tarmacs to the quality of the fuel, is not there and a will be a long time in coming. He said, by that time, Alaska wants to be so solidified that this is the Text-Stop hub. Number 1926 MR. RUFF referred to the incentive program and said it is important that we know what the role of the airport is, that we don't misidentify ourselves. He said this happened in Portland when they attempted to compete with Sea-Tac. He said when they shifted gears and focused more on cargo development they did well. He said the role for both airports in Alaska is clearly defined. Number 1982 ADJOURNMENT There being no further business to conduct, CHAIRMAN COWDERY adjourned the meeting of the House Special Committee on International Trade and Tourism at 12:30 p.m.