HOUSE SPECIAL COMMITTEE ON INTERNATIONAL TRADE AND TOURISM March 24, 1998 4:09 p.m. MEMBERS PRESENT Representative John Cowdery, Chairman Representative Eldon Mulder Representative Pete Kott Representative Kim Elton Representative Reggie Joule Representative Joe Ryan MEMBERS ABSENT Representative Gail Phillips COMMITTEE CALENDAR HOUSE BILL NO. 432 "An Act relating to the bond authorization for international airports revenue bonds; and providing for an effective date." - PASSED CSHB 432(ITT) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 432 SHORT TITLE: AIRPORT REVENUE BONDS SPONSOR(S): REPRESENTATIVES(S) COWDERY Jrn-Date Jrn-Page Action 2/18/98 2353 (H) READ THE FIRST TIME - REFERRAL(S) 2/18/98 2353 (H) ITT, TRANSPORTATION, FINANCE 2/24/98 (H) ITT AT 5:00 PM BUTROVICH RM 205 2/24/98 (H) MINUTE(ITT) 2/25/98 (H) ITT AT 5:00 PM BELTZ ROOM 211 2/25/98 (H) MINUTE(ITT) 3/05/98 (H) ITT AT 4:00 PM BUTROVICH RM 205 3/05/98 (H) MINUTE(ITT) 3/19/98 (H) ITT AT 4:00 PM BUTROVICH RM 205 3/19/98 (H) MINUTE(ITT) 3/24/98 (H) ITT AT 4:00 PM BUTROVICH RM 205 WITNESS REGISTER DAVE EBERLE, Director Design and Construction, Central Region Department of Transportation & Public Facilities P.O. Box 196900 Anchorage, Alaska 99519-6900 Telephone: (907) 269-0780 POSITION STATEMENT: Clarified previous testimony on HB 432. MARCO PIGNALBERI, Legislative Assistant to Representative John Cowdery Alaska State Legislature Capitol Building, Room 416 Juneau, Alaska 99801-1182 Telephone: (907) 465-3879 POSITION STATEMENT: Explained amendments to HB 432. KURT PARKAN, Deputy Commissioner Department of Transportation & Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-6977 POSITION STATEMENT: Commented on HB 432. ROSS KINNEY, Deputy Commissioner Treasury Division Department of Revenue P.O. Box 110405 Juneau, Alaska 99811-0405 Telephone: (907) 465-4880 POSITION STATEMENT: Commented on HB 432. ACTION NARRATIVE TAPE 98-8, SIDE A Number 0001 CHAIRMAN JOHN COWDERY called the House Special Committee on International Trade and Tourism meeting to order at 4:09 p.m. Members present at the call to order were Representatives Cowdery, Kott, Joule, Elton, Ryan and Mulder. Representative Phillips was absent. HB 432 - AIRPORT REVENUE BONDS Number 0018 CHAIRMAN COWDERY announced the first order of business was HB 432, "An Act relating to the bond authorization for international airports revenue bonds; and providing for an effective date." It was his intention to address a couple of amendments, but first he asked Dave Eberle to clarify testimony given at a previous meeting. He asked Mr. Eberle to explain his view of the sources and uses of funds for this project. Number 0024 DAVE EBERLE, Director, Design and Construction, Central Region, Department of Transportation & Public Facilities, testified via teleconference from Anchorage, stating the total project cost for the terminal redevelopment project as proposed, including the cost of financing, is $230 million. Under HB 432, the anticipated funding sources for the project would be revenue bonds in the amount of $180 million, federal highway funds in the amount of $26 million and Federal Aviation Administration (FAA) funding in the amount of $24 million; totaling $230 million. Assuming all sources of these funds come to pass, he said this would be sufficient to construct the project as proposed. Number 0041 CHAIRMAN COWDERY explained that his request for clarification was based on a misquote in the funding in an earlier meeting. He thanked Mr. Eberle for clarifying this for the committee. At this time he asked his legislative assistant, Marco Pignalberi, to explain the amendments. Number 0053 REPRESENTATIVE ELDON MULDER made a motion to adopt Amendment 1 which was labeled A.3. REPRESENTATIVE REGGIE JOULE objected for discussion purposes. CHAIRMAN COWDERY asked Mr. Pignalberi to explain the purpose of the amendment. Number 0065 MARCO PIGNALBERI, Legislative Assistant to Representative John Cowdery, explained Amendment 1 concerns passenger facility charges (PFC). He said in the event that passenger facility charges become part of the mechanism to pay down the bonded indebtedness, the passenger facility charges must first be used for that purpose. Currently, passenger facility charges are not part of the mechanism, but it is expected that next year the Administration or perhaps the legislature, will invoke passenger facility charges as recommended by the FAA. The purpose of Amendment 1 is to require that to the extent allowed by federal regulations, passenger facility charges be used to pay down the debt for all eligible parts of the project. Number 0082 REPRESENTATIVE MULDER asked if it was anticipated that the passenger facility charges would go away once the revenue bonds are retired? MR. PIGNALBERI said that would be an independent program that would go on until the legislature took separate action. Number 0090 REPRESENTATIVE JOE RYAN voiced his opposition to Amendment 1. He believes it is unfair for everyone in Alaska who travels to be charged $6.00 for two landings in order to help pay off improvements for the Anchorage airport. MR. PIGNALBERI explained that Amendment 1 does not invoke passenger facility charges; it only says that if and when the legislature does invoke passenger facility charges, the income would be used to pay down the debt. Number 0115 REPRESENTATIVE KIM ELTON requested that someone refresh his memory about the process inasmuch as he doesn't have a state facility airport in his community. For example, if a passenger fee is charged, who determines the use of the receipts from the fee? Is it the state, the airport users group or who? MR. PIGNALBERI explained there are only certain types of projects that can be paid for with passenger facility charges and FAA governs that determination. REPRESENTATIVE ELTON remarked that only half answers the question. He wanted to know which entity picks which of the FAA allowable expenses can be used. CHAIRMAN COWDERY noted that Kurt Parkan from the Department of Transportation & Public Facilities was present and could probably answer Representative Elton's question. Number 0138 KURT PARKAN, Deputy Commissioner, Department of Transportation & Public Facilities, explained "In brief the way the program works, the sponsor of the airport - in our case it would be the state of Alaska for Anchorage. For your community, the sponsor for the Juneau airport which has proceeded forward with passenger facility charges, would be the municipality. So the sponsor of the airport would work with the FAA to get approval to collect passenger facility charges for a specific purpose - a specific project - and money from the PFC could only go for that specific project. The process that the sponsor goes through in getting the PFCs collected for that project involves a review by the airlines serving at the airport as well as a whole public community process. So a project that is proposed would go to the airlines for their review and then it would go out for public comment and then ultimately get approved or rejected by the FAA. And then once it's approved by the FAA, then you start collecting the fees." Number 0156 REPRESENTATIVE ELTON inquired as to the department's position on an amendment that restricts the department's latitude in the use of receipts from the passenger facility charges to only paying off revenue bonds. MR. PARKAN confirmed this was the same draft he had reviewed earlier and said the only concern he has with regard to the amendment is placing in statute an absolute on how the PFCs could be spent in the event that a PFC was invoked. He added there are some federal requirements in how the money can be spent and his concern with the amendment as currently written, is that more PFCs may be collected than is actually needed to pay off the bonds and there is no mechanism to store those funds for other purposes because the purpose of the PFC is to spend the PFC for a specific project. Number 0175 REPRESENTATIVE ELTON said what bothers him about Amendment 1 is that it appears to be creating a situation in which the airport users could essentially say, "one of the ways that we get beyond having to pay for these improvements ourselves is we can shift the burden back to our passengers rather than ..." He questioned the value of an amendment that is so restrictive and takes away other options that may be available not only to the state, but to the airport as well. Number 0188 MR. PIGNALBERI reiterated this would only come in to play if the legislature decides to invoke passenger facility charges. It has no effect because right now there are no passenger facility charges. But in the event that legislation is passed in the future, then this would come in to play and at that time the legislature could place whatever restrictions that are allowable under federal law. He added, "I think one thing that we're overlooking here is that the way this is drafted now, this money is to be used for redeeming before they're fixed maturities; in other words, it's to be used for paying down the debt early for those eligible portions of the project and then the project will be paid off in the natural amortization period. A passenger facility charge money when it becomes available would go for early debt retirement. That's all this would do, but again, it's only after the legislature decides to adopt a PFC." REPRESENTATIVE RYAN commented he understood this to be an insurance policy because this project will not "fly" without the passenger facility charge. He said the landing fees aren't there and nothing has been done about starting the letters of intent on renegotiating agreements with the carriers that will expire in two years. So, implementing the passenger facility charge will be the easiest way to go when the crunch comes. Number 0229 CHAIRMAN COWDERY pointed out that a letter requesting a waiver from the passenger facility fee for rural Alaska had been sent to Senator Stevens. MR. PIGNALBERI clarified that the draft amendment Mr. Parkan was working from was not the same language they had discussed earlier. He said, "I need to make a clarification because when he was in our office and we spoke about allowing the PFC charges to be used for early debt retirement and then anything that's allowable after that, the language was changed so maybe I need to let you read -- I'm sorry, this came in just 20 minutes ago, so you haven't really seen this language. It is what we talked about and the language is changed since the earlier version you saw and now it reads so that all the uses in the statute -- those paragraphs you may be familiar with -- are subject to being paid for by PFCs." Number 0248 MR. PARKAN commented that he didn't know how the concerns he had previously expressed would apply to the proposed amendment inasmuch as he had not had the opportunity to review it. However, he did point out the passenger facility charge would be $3.00 not $6.00 as Representative Ryan had previously indicated because the collection is based on an enplanement. REPRESENTATIVE RYAN replied it had been explained to him that there was a $3.00 charge which could be applied to two landings during a trip. MR. PARKAN said that was correct - it's up to two enplanements - two airports can collect it; not twice at one airport. In other words in the instance of an individual traveling from Anchorage to Seattle to another destination, Anchorage if it had PFCs could collect it and Seattle could collect it, but no airport beyond would be able to collect it. And on the return, it's the last two enplanement areas, so Seattle would be able to collect it, but not Anchorage because it's a deplanement spot on the return. CHAIRMAN COWDERY noted that Ross Kinney from the Department of Revenue wished to make some comments. Number 0272 ROSS KINNEY, Deputy Commissioner, Treasury Division, Department of Revenue, commented, "Just listening to the discussion, one thing comes to mind I think the committee certainly ought to be aware of and that simply is the fact that where we talk about the purpose of redeeming before they're fixed maturities on these bonds, there are a couple of things you need to know. With language like this included in the statute, it would require that we not have a no call period in this bond issue for what we would normally consider a period of ten years which would give the investor an assurance that we're not going to call in the bonds early. Because if we don't give that assurance, the interest rates go up because the investor looks at it from a risk/reward situation and say the risk is, this thing is going to be jerked out from under me; it's going to be called and paid early and therefore, I want a premium for that. So my preference would be with the facilities charge that we not mention about calling early - that we just say it applies to the debt service. And then based on interest rate situations, it would dictate whether or not we want to pay it off early or whether we can earn more money with the facility charge by sitting in that fund and apply it to some other thing. If we're borrowing money at 3 and 4 percent, the rates change and go to 6 and this is not arbitrage because it's a fee and we're not restricted on that kind of a limitation, then we could take those interest earnings, apply it to the debt or whatever. So, I just caution you about that. This would give a potential investor some concern - we will pay a premium on the rates as a result of that." Number 0293 REPRESENTATIVE MULDER asked what Mr. Kinney's guesstimate is of the premium we've paid? He noted this could be a significant factor in driving the cost up, but he didn't know what that translates to in bases points. MR. KINNEY said inasmuch as he really didn't know, he was hesitant to respond, but agreed that Representative Mulder was correct in that it could be a substantial number and it's certainly based on what the risk is perceived to be. He remarked he could do some work on it and probably get a number. REPRESENTATIVE MULDER said, "It's an easy concept to understand in the sense that it's very difficult to get somebody to buy an instrument knowing you're only going to get a 3.5 percent or 3.8 percent return, but you'll do it if you know there's some security for longevity. But if we take that security away, obviously the value of that instrument is diminished." Number 0307 MR. KINNEY noted this is a tax exempt mortgage, so there may be income tax consequences for some individuals if they can't reinvest this in the same kind of a vehicle. Number 0314 CHAIRMAN COWDERY suggested that Amendment 1 be withdrawn and allow the Finance Committee could address this issue. Number 0320 REPRESENTATIVE MULDER withdrew Amendment 1. There being no objection, Amendment 1 was withdrawn. Number 0322 REPRESENTATIVE MULDER made a motion to adopt Amendment 2. CHAIRMAN COWDERY asked Mr. Pignalberi to explain Amendment 2. Number 0324 MR. PIGNALBERI said Amendment 2 requires the department to submit a spending plan to the legislature. If the bonds are sold in the aggregate amount of $180 million, the department will have that much money to spend with no further oversight necessarily by the legislature. This amendment will require that each year the department simply present their spending plan for the following year to the legislature; not for appropriation-type approval, but simply for the matter of accountability so the legislature can see during the course of the four-year construction period how much work is going to be done and how much money would be spent. Number 0335 REPRESENTATIVE MULDER said even though this is done annually, it's easy for it to get lost in the department's overall budget and thought this was a smart approach. Additionally, he said it addresses one of the concerns expressed in terms of it being a concept as opposed to a real plan. Number 0343 REPRESENTATIVE RYAN agreed this was a good idea, but said his only concern was in terms of what action would be taken when the department indicated that inflation had eaten up the original cost and additional funds were needed to finish the project. MR. PIGNALBERI commented that could happen with or without this amendment. CHAIRMAN COWDERY asked if there was objection to Amendment 2. There being none, Amendment 2 was adopted. Number 0354 REPRESENTATIVE MULDER made a motion to move HCSHB 432(ITT) from committee with individual recommendations and attached fiscal notes. Number 0357 REPRESENTATIVE RYAN objected. REPRESENTATIVE PETE KOTT pointed out the motion should be amended because the committee was not moving a house committee substitute, but rather a house bill, as amended. REPRESENTATIVE MULDER amended the motion to move HB 432, as amended with individual recommendations and attached fiscal notes. Number 0363 REPRESENTATIVE RYAN said based on the testimony that's been given, the questions asked about the source of revenue, where the passengers will come from to pay for this and the pro forma which showed the money the international fund has made, he suggested this go back to the drawing board for additional thought and consideration. Number 0377 REPRESENTATIVE ELTON expressed his support for the legislation. He said this legislation is for revenue bonds, it's passed the ultimate market test and it was taken to the users of the facility who are actually going to pay off the facility that is constructed. He was reminded of the debate in Southeast Alaska some 30 years ago in which some people believed that airports were not needed in Petersburg, Wrangell and Sitka because the PBY aircraft was satisfactorily serving those communities. The investment made in those airports made a significant difference in the economy of those communities and he was of the opinion that reinvestment should be made in some of those assets. He said his only question is whether new authority or new capacity of $180 million is enough. Number 0390 REPRESENTATIVE REGGIE JOULE commented he would vote to move this bill from committee knowing that it would get further work in the Finance Committee. It is his observation that when there are big issues that need to get taken care of outside of the urban areas, a task force or a commission is created, while the big projects for urban areas receive an appropriation. There is no question in his mind that the work needs to get done at the Anchorage International Airport, but there's also no question about the needs of some of the other projects outside urban areas. Number 0403 REPRESENTATIVE KOTT expressed his appreciation to Chairman Cowdery and his staff for their work on HB 432. He believed much of the ground work had been covered that other committees will be interested in and encouraged the other committees to review the minutes of this committee. CHAIRMAN COWDERY stated it was his intention to draft a comprehensive report for the next committee of referral. Number 0413 CHAIRMAN COWDERY asked for a roll call vote. Representatives Elton, Joule, Kott, Mulder and Cowdery voted in favor of moving the bill. Representative Ryan voted against it. Representative Phillips was absent. Therefore, CSHB 432(ITT) moved from the House Special Committee on International Trade and Tourism by a vote of 5-1. ADJOURNMENT Number 0416 CHAIRMAN COWDERY adjourned the House Special Committee on International Trade and Tourism at 4:38 p.m.