HOUSE TRANSPORTATION STANDING COMMITTEE April 28, 1997 1:15 p.m. MEMBERS PRESENT Representative Bill Williams, Chairman Representative Beverly Masek, Vice Chairman Representative John Cowdery Representative Jerry Sanders Representative Kim Elton Representative Al Kookesh OTHER HOUSE MEMBERS PRESENT Representative Tom Brice MEMBERS ABSENT Representative Bill Hudson COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 25 Supporting enhancement of visitor access to Denali National Park and Preserve through development of a northern railroad route corridor access to the vicinity of Wonder Lake. - MOVED SJR 25 OUT OF COMMITTEE *HOUSE BILL NO. 210 "An Act relating to the extension of contracts for the sale and delivery of inbound merchandise at international airports." - MOVED HB 210 OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: SJR 25 SHORT TITLE: SUPPORT ACCESS TO DENALI/WONDER LAKE SPONSOR(S): SENATOR(S) WILKEN, Sharp, Miller, Taylor, Pearce; REPRESENTATIVE(S) Brice JRN-DATE JRN-PG ACTION 04/01/97 917 (S) READ THE FIRST TIME - REFERRAL(S) 04/01/97 917 (S) TRA 04/10/97 (S) TRA AT 1:30 PM BUTROVICH ROOM 205 04/10/97 (S) MINUTE(TRA) 04/15/97 (S) TRA AT 1:30 PM BUTROVICH ROOM 205 04/15/97 (S) MINUTE(TRA) 04/15/97 (S) MINUTE(TRA) 04/16/97 1160 (S) TRA RPT 3DP 04/16/97 1160 (S) DP: WARD, GREEN, WILKEN 04/16/97 1160 (S) ZERO FISCAL NOTE (TRA) 04/22/97 (S) RLS AT 10:45 AM FAHRENKAMP RM 203 04/22/97 1384 (S) RULES TO CALENDAR 4/22/97 04/22/97 1427 (S) READ THE SECOND TIME 04/22/97 1427 (S) ADVANCED TO THIRD READING UNAN CONSENT 04/22/97 1428 (S) READ THE THIRD TIME SJR 25 04/22/97 1428 (S) COSPONSOR(S): TAYLOR, PEARCE 04/22/97 1428 (S) PASSED Y18 N1 A1 04/22/97 1432 (S) TRANSMITTED TO (H) 04/23/97 1284 (H) READ THE FIRST TIME - REFERRAL(S) 04/23/97 1284 (H) TRANSPORTATION 04/23/97 1309 (H) CROSS SPONSOR(S): BRICE 04/28/97 (H) TRA AT 1:45 PM CAPITOL 17 BILL: HB 210 SHORT TITLE: AIRPORT DUTY-FREE CONCESSIONS SPONSOR(S): REPRESENTATIVE(S) ROKEBERG JRN-DATE JRN-PG ACTION 03/25/97 827 (H) READ THE FIRST TIME - REFERRAL(S) 03/25/97 827 (H) TRANSPORTATION, L&C 04/28/97 (H) TRA AT 1:45 PM CAPITOL 17 WITNESS REGISTER SENATOR GARY WILKEN Alaska State Legislature State Capitol, Room 510 Juneau Alaska 99801-1182 Telephone: (907) 465-3709 POSITION STATEMENT: Sponsor testimony on SJR 25. BILL PERHACH P.O. Box 34 Fairbanks, Alaska 99755 Telephone: (907) 683-1373 POSITION STATEMENT: Testified against SJR 25. JOSEPH FIELDS P.O.Box 71047 Fairbanks, Alaska 99707 Telephone: (907) 451-7906 POSITION STATEMENT: REPRESENTATIVE NORMAN ROKEBERG Alaska State Legislature State Capitol, Room 24 Juneau, Alaska 99801-1182 Telephone: (907) 465-4954 POSITION STATEMENT: Sponsor testimony on HB 210. SAM S. KITO III, Legislative Liaison/Special Assistant Office of the Commissioner Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-3904 POSITION STATEMENT: Testified neither in favor nor against HB 210. LYNN KLASSERT, General Manager David Green Group P.O. Box 220687 Anchorage, Alaska 99522-0687 Telephone: (907) 249-7229 POSITION STATEMENT: Testified in favor of HB 210. RICK BENEDETTI, Representative David Green Group P.O. Box 200687 Anchorage, Alaska 99522-0687 Telephone: (907) 249-7228 POSITION STATEMENT: Testified in favor of HB 210. ELIZABETH HICKERSON, Assistant Attorney General Transportation Section Civil Division Department of Law 1031 West 4th Avenue, Suite 200 Anchorage Alaska 99501 Telephone: (907) 269-5100 POSITION STATEMENT: Provided testimony on HB 210. ASHLEY REED, Lobbyist David Green Group 360 West Benson Boulevard, Suite 200 Anchorage, Alaska 99503 Telephone: (907) 562-2560 or 321-2449 POSITION STATEMENT: Provided testimony in support of HB 210. ACTION NARRATIVE TAPE 97-25, SIDE A Number 0001 CHAIRMAN BILL WILLIAMS called the House Transportation Standing Committee to order at 2:15 p.m. Members present at the call to order were Representatives Williams, Sanders, Elton and Kookesh. Representative Masek arrived at 2:11 p.m.; and Representative Cowdery at 2:30 p.m. Representative Hudson was absent. SJR 25 - SUPPORT ACCESS TO DENALI/WONDER LAKE Number 23 CHAIRMAN WILLIAMS announced the first order of business to be SJR 25, "Supporting enhancement of visitor access to Denali National Park and Preserve through development of a northern railroad route corridor access to the vicinity of Wonder Lake." He asked Senator Wilken to present the bill. Number 71 SENATOR GARY WILKEN, Alaska State Legislature, stated: "That as a 40 year plus Alaskan resident, one of the things that has embarrassed me terribly is that when we ask people to come to Alaska and we ask them to see our natural beauty and we promise them Mt. Mckinley, they come with a promise of a mountain and what we show them is a canyon. We show them a six hour bus ride - a school bus ride - and the chances are one of three that they'll see the most grand mountain on the North American Continent." The northern railway would bring people in an environmentally friendly way to Wonder Lake and to the best viewing place for Mt. McKinley. There were 16 different organizations that had endorsed this concept as a northern viewpoint and access to Mt. McKinley. He encouraged full support of this legislation. Number 323 BILL PERHACH was the first person to testify in Juneau. He was a resident of the community adjacent to Denali Park, had lived there since 1977, and had worked in the tourism industry since that time. For fourteen years he had worked with the package tour cruise ship industry and for the last six years he had been working with the eco-tourism market. He was against the railroad. Number 378 MR. PERHACH referred to page 1, line 6, "chance to encounter wildlife". There was not much "watchable" wildlife there. The park and the original wildness designated portion traverses a series of valleys and the road was intended to be a tourist draw. Trains did not lend itself to watching wildlife because they could not be stopped at every turn. The train proposed was a high speed train - 40 to 45 miles per hour - to move the people into the area to see the mountain. The mountain was more visible on the south side of the range; the weather was less harsh, so that would be the place for development. Number 565 MR. PERHACH referred to page 1, line 12-13, "lack of facilities at these areas are major obstacles to enhancing the wilderness experience". There was a wilderness designated portion of the park that did not have many facilities to give a wilderness experience. The plan for the south side development project was going to address the idea of development. Mt. Mckinley was more visible from the area of Petersville Road. MR. PERHACH referred to page 2, line 5-line 6, "taking advantage of a long-established and historic transportation route previously used by the mining industry". the Stampede Trail was used by Earl Pilgrim but only in the winter time to move ore out on sleds. He put a road in there in the 1960's but felt that the road in the summertime would not hold up under his usage. Consequently, he never transported in the summertime. The road now had gone back to nature. Number 756 MR. PERHACH further stated that the project would cost between $280 million to $350 million, having two 300 room hotels. At $100 per ticket there would not be enough business on the railroad for the debt service let alone to make a profit. Number 828 REPRESENTATIVE KIM ELTON stated that he was thinking of this in terms of the White Pass Railway in Skagway. The experience was not quantified by the number of animals that was seen but by the spectacular country that otherwise would not have been seen. He asked Mr. Perhach who made the decision of what was financially viable or not; and, did the numbers include the cost of the right- of-way? Number 904 MR. PERHACH replied they were asking for the right-of-way and for the building site at the wonder lake station. They were willing to work on a concession but they were not buying the right-of-way; they were asking for it to be given to them. REPRESENTATIVE ELTON stated that cost of $50 million was just for the construction of the rail line. MR. PERHACH stated that it was the construction of the rail line, rolling stock, hotels, and infrastructure to maintain the products. If something was build on the south side of Denali, there would be access to the road system and power and to the existing railroad which was not being used to its maximum capacity. The package tour market did not think that they were going to be able to supply the 500,000 additional guests that the railroad was going to depend on. The package cruise ships industry was not trying to sell Denali Park; they were selling time on a ship. Number 1081 SENATOR WILKEN stated that the meteorological viewing days from the north side of the mountain were double the meteorological viewing days from the south side. He asked Mr. Perhach what was an eco- tourism operator? Number 1130 MR. PERHACH replied that it could be defined in terms of the clientele. People that came here on eco-tours had already been to Alaska once and now they wanted to see a lot of a little rather than a little of a lot. Eco-tourists were more interested in the hands-on experience of participating in the environment. Number 1157 SENATOR WILKEN asked Mr. Perhach if it would be possible to develop both the south-side and the north-side? Number 1200 MR. PERHACH replied, "Yes." But Denali Park to him was not just a way to make a living. In addition, over the years, there had been a gradual decline in viewing wildlife. If the south side was developed, the wilderness designated portion of the park would have to be left alone. Number 1277 JOE FIELDS testified next via teleconference in Fairbanks. The mayors of Denali, Fairbanks-North Star, Haines, city of Fairbanks, Seward, municipality of Anchorage, city of North Pole, and Matsu- Susitna had all signed resolutions of endorsement of the north-side access to the park and to the Denali railway concept. The determined cost was at about $185 million for the rail system and $60 million for the two hotels. The market projections were about 525,000 people into the park on a yearly basis. There would not be any development inside the wilderness portion of the park. The cost for the south-side was proposed as publicly funded development. The rail line was a plan to take a large number of people in a comfortable and safe form of visitation into the interior of the park to the area by wonder lake - a good stable area that could be developed without having a great impact. The area was already developed with cabins and forest ranger stations. Number 1591 SENATOR WILKEN asked Mr. Fields if he would speak to Healy being the terminus of the plan in regards to its proximity to the railroad, parks highway, and electric power? Number 1602 MR. FIELDS stated that it was a little bit north of Healy, about two miles from the new power plant - 300 feet vertical from the parks highway. It was all outside the wilderness area. The Healy area had good access from two different roads, one which was proposed to be built along side the right-of way to the rail junction. Number 1692 REPRESENTATIVE JERRY SANDERS moved that SJR 25 move from the committee with individual recommendations and the attached zero fiscal note. There was no objection, SJR 25 was so moved from the House Transportation Standing Committee. HB 210 - AIRPORT DUTY-FREE CONCESSIONS Number 1697 CHAIRMAN WILLIAMS announced the next order of business to come before the House Transportation Standing Committee was HB 210, "An Act relating to the extension of contracts for the sale and delivery of inbound merchandise at international airports." Number 1729 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, explained HB 210 would give the authority to the Department of Transportation and Public Facilities (DOT/PF) to grant a lease extension to a lease holder for areas which were for sale and delivery of inbound merchandise. At one point as much as $100,000 million in gross revenues were produced by the duty free ports at the Anchorage International Airport, with annual receipts back to the state in excess of $19 million. However, because of the change in air traffic, there was a period when Anchorage was skipped as part of the passenger refueling and servicing destinations for the international traffic between Europe and the Orient. The traffic was picking up again and it was to the benefit of the state of Alaska to enhance the revenues of the Alaska International Airports Systems - Anchorage and Fairbanks. It was necessary for the concessionaires to make substantial lease holding improvements to the premises in the international terminal in Anchorage in order to merchandize some of the world-class merchandise. As a result, they were asking for an extension of their lease to enable them to amortize the cost of several millions of dollars worth of improvements. Anchorage was in the middle of the flight patterns competing with New York City, Hong Kong, and Seoul - all with vast duty free shops. The bill would enhance the revenues to the state and it was critical that the best interest of the state be served. Number 1948 REPRESENTATIVE ELTON asked Representative Rokeberg what had been the practice of time for the contracts? REPRESENTATIVE ROKEBERG replied that it had been for four years and eleven months. There was a Federal Aviation Agency (FAA) regulation that mandated certain activities at international airports be limited to five years because the federal government wished to have economic opportunity or consideration of minority participation in lease hold interests at these types of concessions. The Alaska group did have substantial ownership by minority people. Renewal options were common but they depended on market conditions. Number 2071 SAM S. KITO III, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities, was the next person to testify in Juneau. The department had submitted a zero fiscal note for this piece of legislation. The department's position was neither in favor nor in opposition to the legislation. It was his understanding that the bill was not retroactive. Number 2122 REPRESENTATIVE ROKEBERG asked Mr. Kito III if his prospective opinion was based on a legal opinion? Number 2130 MR. KITO III replied he would defer it to the Department of Law. Number 2140 LYNN KLASSERT, General Manager, David Green Group, testified next via teleconference in Anchorage. The Alaska location competes for a market share with many Asian Airports. The group took over the concession in 1995, when revenues were at $17 million verses $100 million in 1988. The group had invested $1.5 million in trying to find out the needs of their customers - mostly Korean and Chinese. The facility needed to be improved and the group was willing to spend the money to bring it up to recapture the market share. However, to invest the money, the group needs a longer period to receive the investment back. The group had increased its staff from 25 to over 80 employees, but the growth would not come without enhancements to the assets. The group would like an extension that would meet the needs of the capital improvement so everyone could benefit. Number 2386 RICK BENEDETTI, Representative, David Green Group, testified next via teleconference in Anchorage. The contract exemption should apply to the existing contract. This type business was competitive and moved forward quickly. Waiting could cause a missed opportunity. Number 2421 REPRESENTATIVE ROKEBERG asked Mr. Klassert if the transition situation of being recruited by the state to take over could be addressed? Number 2432 MR. KLASSERT replied that Mr. Benedetti and himself prepared the business plan to try and qualify themselves and to find investors to work with them. They were both employed by the former operator - Duty Free Shoppers Limited. The state had put it up for bid and they qualified on the fourth go around. TAPE 97-25, SIDE B Number 0008 ELIZABETH HICKERSON, Assistant Attorney General, Transportation Section, Civil Division, Department of Law, testified next via teleconference in Fairbanks. She was concerned how the bill applied to the existing contract and the retroactivity. It was an exclusive contract for a competitive situation. There were two other bidders that did bid on the contract. The airport regulations required that the terms and conditions of all competitive bids be publicly noted. The invitation to bid provided that the contract terms were not negotiable. There was a major section on disclaimer. There would be litigation, if there was an attempt to extend the existing contract. The last bid was in fact litigated up to the supreme court. Today, there were six interested parties including the existing concessionaire. The interest was there and the market place was watching. She was concerned about legislation that would only apply to the David Green Group contract. She was also concerned about the issue of competitive principles. Today, she was asking that the legislature be very cautious when applying the bill to the existing contract because it would break the non-negotiable terms promise that the state made in 1995 when it offered the bid to the public. Number 125 REPRESENTATIVE ELTON stated, according to AS Sec. 02.15.091 (d), one of the factors of consideration was the character and improvements of the proposed facilities. He asked Ms. Hickerson if that would apply to improvements made by the old lease holder; or, to prospective improvements that any lease holder would plan on making? MS. HICKERSON replied the state could structure a bid that was based on future improvements. The David Green Group took existing fixtures left by the previous concessionaire. Number 185 REPRESENTATIVE ELTON stated the provision in the bill would give the Department of Law the ability to say that any extension of the existing contract could be questionable and that the it could be denied based on advise from the department in regards to her concern of retroactivity. MS. HICKERSON stated she saw an extension awarded after a bid to be inconsistent with the principles of competitive bidding. Number 240 REPRESENTATIVE ROKEBERG asked Ms. Hickerson, in light of the North Star activity in the Nineteenth Alaska State Legislature, wasn't it the right of the legislature to set the policy of the state? For example, HB 210 would give the department the latitude to renegotiate an existing lease or concession. Number 253 MS. HICKERSON replied the department had looked at the North Star lease and had concerns about the position of the state. There were many differences between the North Star lease and the duty free lease, however. The duty free lease was a short-term concession contract based on a percentage of revenue. It was very different from the development of state resources. Number 295 REPRESENTATIVE ROKEBERG asked Ms. Hickerson if the bill would give authority to the department to renegotiate the existing lease? In other words, the intention of the bill. Number 304 MS. HICKERSON replied the wording would give the state the ability to provide an extension to the duty free contract. The provision did not contain a retrospective section. The state could provide for an extension in a new bid packet such as a three year term with options. Number 363 ASHLEY REED, Lobbyist, David Green Group, was the next person to testify in Juneau. He also served as the lobbyist for Duty Free Shoppers Limited - the previous concessionaire. It was ironic that the state was pleased that it had 6 people interested in the up and coming bid package when the last time there were 23 people interested and it could not get anybody to bid the first two times. It was also ironic that at one time the concession produced about $19 million for the state when retail sales did not even approach that amount now. The bill offered a very valuable economic development tool to stay competitive. As Ms. Hickerson indicated, you could write options in a bid, but it was such a rapidly changing business that nobody had a perspective into the future. The David Green Group felt that if it was allowed to make this type of investment, and to make its case to the state, that the state would find it to be in its best interest. Right now, the group had surpassed the minimum payments required and were paying on a percentage. The concession was a state asset and its value should be of concern to the state and to the legislature. The big companies were not interested in the concession because it did not hit their revenue threshold. But, if we could increase revenues and the active participation of the bid process, it would be in the best interest of the state ultimately. Some lawyers argued that HB 210 was not needed to move forward but it would provide a tool for the state whether it was looked at retroactively or perspectively. Number 504 REPRESENTATIVE ROKEBERG announced that he respectfully disagreed with the opinion of Ms. Hickerson. It was deja vu in regards to the airport leasing regulations. Number 525 REPRESENTATIVE ALBERT KOOKESH stated he was comfortable with the bill because of the language "may" and "determines". Ms. Hickerson was looking into the bill a little bit more than she should. It was a tool. REPRESENTATIVE KOOKESH moved that HB 210 move from the committee with individual recommendations and the attached fiscal note. There was no objection, HB 210 was so moved from the House Transportation Standing Committee. ADJOURNMENT Number 0563 CHAIRMAN WILLIAMS adjourned the House Transportation Standing Committee meeting at 3:15 p.m.