MINUTES{PRIVATE }   SENATE FINANCE COMMITTEE   21 August 1997   4:55 p.m.    TAPES    SFC-97, 158, Sides A and B [NOTE: Tape quality is very poor.] CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 4:55 p.m. at the Alaska Legislative Information Office, Anchorage, Alaska. PRESENT In addition to Co-chair Pearce, Senators Phillips, Donley, Torgerson, Parnell, and Adams were present. Senator Sharp was excused. ALSO ATTENDING: Mike Greany, Director, Division of Legislative Finance; Randy Welker, Legislative Auditor, Division of Legislative Audit; Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Nancy Slagle, Director, Division of Administrative Services, Department of Transportation and Public Facilities; Morton Plumb, Jr., Director, Anchorage International Airport; John Ungar, Controller, Alaska International Airport System. SUMMARY INFORMATION ^Budget Overview Mr. Mike Greany addressed the committee regarding the budget downtrend. Annalee McConnell addressed the committee and advised the status of the Canadian fishermen blockade of the ferry Malaspina. Mr. Morton Plumb presented a slide review of the Anchorage International Airport. Co-chair Pearce provided an overview of the agenda and stated her intent to think about the coming year's budget. She highlighted her interest in the different training programs. She hoped to have at least one meeting each month in the time period before the legislative session to address budget cuts. MIKE GREANY, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE, addressed the revenue downtrend as the government obligation (GO) debt was paid off. He noted that there were two more years left under the existing debt. A payment would be made in FY 99 ($5.4 million) and the last payment would be made in 2000. During the last session, money had been appropriated to the retirement fund to pre-pay some of the debt service. He anticipated an overall general fund reduction of approximately $10.4 million in debt service. Mr. Greany addressed other elements of the debt service cost, including the school debt reimbursement. He emphasized that funding needs could only be estimated. Senator Adams queried the numbers for the GO debt and the school debt. Mr. Greany responded that the FY 98 GO debt was $14.2 million; the debt in FY 99 would be $8.8 million. In 2000, the last payment would be $2.4 million. The school debt reimbursement number for the current year was $62.3 million and the number for FY 99 was approximately the same. Mr. Greany pointed to major foundation programs that were going down, including the longevity-bonus program. He reported that the Department of Administration was working on numbers; he estimated the cost would be a reduction of $2 million to $5 million from the current year's level of approximately $70 million. Mr. Greany turned to Medicaid, which he characterized as "complicated." In the current year, $30 million in general funds were replaced with federal funds; language was added to the budget stipulating that $30 million would be appropriated back if there was not a different federal match rate. He informed the committee that the state had gotten a better federal-match rate, so the $30 million appropriation would not kick in to replace the previous fund switch; however, there would probably be a supplemental appropriation to put $8 million in general funds back for FY 98, because in the current year there was not a one-to-one ratio. He did not know the implications for FY 99, but assumed the same funding level. He pointed out that more information would be available as time passed. Mr. Greany spoke to the impact of welfare reform on caseloads, another formula piece that could be affected. Mr. Greany turned to the subject of agency non-formula programs in the operations side of the budget. He noted that there would be both costs and savings. On the cost side, the third year of the employee contracts would cost approximately $8 million general funds. He emphasized the number would be refined. He recalled the salary increases implemented by the legislature: $5 million from investment-loss trust fund money had been put in to fund the contract. The funds were one-time and could be replaced with general funds, or the built-in salary increases would be underfunded by the amount. Considering the two items, he suggested there was a potential of a $13 million increase related to state employee salaries. Mr. Greany recalled that during the previous legislative session, there had been a reduction in the Public Employee Retirement System (PERS) from 13 to 9.32 percent, which had saved the state $16 million. He had found out that there was another rate reduction pending; the new rates for FY 99 would be approximately 8.5 percent, which would provide general fund savings of about $3 million to $3.5 million. [Unintelligible discussion regarding windfalls and revenue projections] Mr. Greany explained that the state was below the spring forecast for the current fiscal year. He warned that oil prices could change, although he expected them to go down. He pointed to the surplus of $60 million. Co-chair Pearce requested an update regarding the ferry system. She noted that each committee member had a copy of the August 21 letter from the governor to Senator Miller, and a copy of the August 21 memo from Commissioner Perkins to the governor's office. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR (via teleconference), provided the committee with an overview of state expenses resulting from the blockade in Prince Rupert. She reported that the governor had prepared a letter to legislators updating the situation. Senator Adams queried the status of negotiations and of the safe passage of personnel. Ms. McConnell answered that there had not yet been a satisfactory response and that there would be a lawsuit to get money back to private-sector people who had sustained damage. She added that the governor's office had not received assurance that the Canadian government would step in if there were future problems. Senator Torgerson asked whether ferries would be run to Bellingham for the remainder of the year. He wondered what the anticipated financial loss would be. Ms. McConnell did not know and offered to get more information. Senator Torgerson stated that he agreed with the governor about pulling out of Prince Rupert, a position he had taken in the past. He did not think simply keeping the ferries running was the mission of the Alaska Marine Highway System, which was losing money. He was concerned that there would be a supplemental request. Co-chair Pearce referred to estimated costs and asked why re- routing would cost so much. NANCY SLAGLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, replied that the issue was the timing of crew changes, overtime expenses, transfer costs, and other costs resulting from a schedule change. Co-chair Pearce queried the number of people on the ferry out of Bellingham. Ms. Slagle did not have the information and offered to get it. Senator Phillips queried the pre-condition letter to the federal and provisional authorities. Ms. Slagle did not know the date and offered to find out. She reported that there had been many communications between the Canadian government and Alaska as well as the State Department; discussion had been on-going since the blockade began. She pointed to the August 1 letter [from the governor] to Mr. Clark and the foreign affairs minister; there had also been much verbal communication. Senator Torgerson referred to the governor's letter about economic claims being sent to the Alaska Marine Highway System and asked whether there had been claims filed by businesses in Southeast. Ms. Slagle responded that she had heard informal talk in briefings and from the attorney general about losses suffered by small businesses that had been expecting shipments, including perishable goods and parts needed for repairs. She did not think documentation had been received regarding the losses, but stated that initial information had been logged. The losses had been communicated to the Canadian government, and would be part of the lawsuit information. Senator Torgerson asked for copies of the information. Ms. Slagle agreed to get the information. Co-chair Pearce wondered whether lease payments for the Prince Rupert dock had been stopped. Ms. Slagle did not know. Co-chair Pearce strongly suggested that the administration sit down with key members of the legislature and talk through plans for the M.V. Malaspina, and not wait until January and bring a supplemental request. Ms. Slagle agreed. Co-chair Pearce discussed scheduling of another meeting. She thought the meeting would be September 8. Co-chair Pearce reported meetings with the director of the Anchorage International Airport and staff regarding changes at the terminal facility. She had queried the process and the cost of proposed plans. She hoped to build political support at the legislative level as well as public support. MORTON PLUMB, JR., DIRECTOR, ANCHORAGE INTERNATIONAL AIRPORT, introduced staff and provided an overview of the project. He directed attention to pictures of what the airport used to look like. He pointed out that the airport currently served over 5 million people each year and was a large cargo port (first in the country for total gross weight) and that there were over 90,000 float-plane operations. He gave other statistics. Mr. Plumb detailed that over 440 cargo planes had been coming through the airport each week; he expected the numbers to increase because of the airport's geographical location. [Testimony unclear related to cargo; maximizing yield and costs.] Mr. Plumb informed the committee that the C Concourse at the airport was a little over 45 years old; without the concourse, the airport had about 75 percent of what was needed. He felt the nominal growth-rate would be about 3.6 percent. He noted that the baggage-claim area was about 43 percent of what was needed, the ticket lobby was 40 percent, and the gate was 31 percent. Mr. Plumb pointed to slides illustrating C Concourse problems, including rusting bolts. The city had decided not to renew a permit. Another photo illustrated the use of duct tape and the existence of asbestos. In addition, the roof leaked and was over- extended. He described the airport as a "very wet cardboard box" and stated that it was unsafe. He pointed to slides of the domestic terminal, which [unintelligible]. The parking areas were stacked all the way out, requiring double-parking; a study had shown there was a need for up to seven additional overnight parking areas. Mr. Plumb explained that there were 50 to 70 passenger planes coming through the international terminal each week; charter flights increased in the summer. He noted that over 95 percent of the terminal was leased out or utilized. He discussed the duty- free area with revenue decreasing from $8 million to $1 million [unclear]. There was a lot of activity in the terminal in the middle of the night; there was not enough area for the planes to park. The entire lobby of the north terminal was filled during the tourist season. [SFC-97, Tape 158, Side B] Mr. Plumb reported that they were working closely with the cruise companies. He addressed the baggage-claim area in the north terminal. Mr. Plumb maintained that review of the "C" Concourse had revealed that it would not be prudent to refurbish the 45-year-old building. In addition, the north terminal did not provide the solution needed, so they met with the airlines and requested assistance in coming up with a plan. The first thing decided was that the concourse had to come down and that a plan was necessary regarding where everyone would be located. A needs assessment was conducted. The partnership with the airlines had continued, including selecting consultants and meeting with the technical committee, which advised the executive board and the board. He reported that the goal was to meet passenger demands by the year 2005, and noted that the project should reflect the culture of Alaska, including aviation history and wildlife. Mr. Plumb wanted to maximize passenger convenience. Surveys were being taken from passengers. He mentioned other members of the team. [Unintelligible testimony about a challenge] He listed numbers of people passing through the airport. The master plan completed at the end of 1995 had forecast that there would be 300,000 people going through the international terminal through the year 2012; last year there were close to 700,000, indicating that the numbers had changed significantly since the last master plan. Mr. Plumb spoke to plans for the airport, including: Expansion to the north · Five new jet gates · 300 additional linear feet of baggage claims · New ticket areas · Additional concession space for restaurants · Mr. Plumb pointed to an illustration of plans and detailed how the changes would be made relative to the existing facility. He described the strategic-planning process. He noted that there was an additional plan for 2015 already in existence; the current development was the part that would be built by 2005. He touched on security plans. Mr. Plumb explained the relationship of the roadway with the airport and the importance of getting the relationship right between the two from the outset. Co-chair Pearce queried the location of the airport tower. Mr. Plumb indicated the location on the slide. Mr. Plumb underlined that more than 75 percent of the people coming to Alaska come through Anchorage International Airport, making the airport a steppingstone to many other Alaskan communities. Mr. Plumb addressed costs, detailing that the airport was self- funding and did not use any general funds. The cost of the project was expected to be between $150 million and $200 million. He added that the road area could get expensive. He did not think the airport/airlines portion of the road system would cost over $13 million. The ballpark figure for the whole road system could be up to $70, if flyovers were used. He indicated some expected road changes. [Unintelligible testimony on costs] Mr. Plumb provided an overview of the process and the expected timelines and costs. He expected something to be built by the following July 1. [Unintelligible] Co-chair Pearce asked a question regarding involvement of cargo carriers. [Response garbled.] Mr. Kepner (?) thought the two large carriers (UPS and FedEx) were part of the process. He spoke to the involvement of air carriers. Mr. Plumb reported that relevant Anchorage authorities and legislative people had been briefed about the process. He thought that the project plans could be unveiled in October. He did not know about the public-hearing process yet. Co-chair Pearce stated that the situation was unique because the airport was state-owned and there was no local government process to put projects on a list before coming to the Department of Transportation and Public Facilities and then the legislature. She believed there needed to be a public process on such a large project. Senator Torgerson queried the need for revenue bonds for the project. Mr. Plumb responded that the issue had not been addressed, but he thought some portion of the funding would come through revenue bonds. JOHN UNGAR, CONTROLLER, ALASKA INTERNATIONAL AIRPORT SYSTEM, added that financial scenarios would be developed once the final construction plans were reached; he thought the worst-case scenario would be the need for revenue bonds for the whole project. He added that currently the only other option would be federal money, although there were more projects pending than there was federal money available. He opined that the bulk of the project would be paid through revenue bonds. [Unintelligible discussion] Unidentified speaker believed a consensus should be reached regarding a finance plan. Senator Adams queried various bonds needed and hoped there would not be a fee to Alaskan residents. He did not want new taxes. Mr. Ungar responded that the carriers would pick up part of the revenue bonds with landing fees, but would pass those costs on to Alaska residents through increased ticket prices. [Garbled discussion regarding funding sources] Senator Adams noted that the international side of the airport was not utilized as much due to fewer flights. He asked whether the international portion had been considered. Mr. Plumb responded that the international part had been looked at, but he did not think that more flights or other operations could fit in the summer as the space was fully utilized. He remarked on other possible approaches (garbled testimony). He stated that further using the international terminal would mean cutting international traffic back and affecting income. There was a discussion about possible revenue from the duty-free store. Co-chair Pearce commented on the importance of the ferry and airport projects. Co-chair Pearce reported that there would be another meeting September 8. ADJOURNMENT    The meeting was adjourned at 11:00 a.m.