MINUTES  SENATE FINANCE COMMITTEE  2 May 1998  9:31 A.M.  TAPES    SFC-98, Tape 150, Sides A and B CALL TO ORDER    Senator Bert Sharp, Co-chair, convened the meeting at approximately 9:31 a.m. PRESENT    In addition to Co-chair Sharp, Senators Pearce, Phillips, Donley, Torgerson, Parnell, and Adams were present at the meeting. Also present: Senator Lyda Green; Senator Jerry Ward; Jeff Bush, Deputy Commissioner, Department of Commerce and Economic Development; Bob Engelbrecht, Past President and Board Member, Alaska Visitor's Association; Representative John Cowdery, Sponsor; Lydia Jones, Staff, Senate Transportation Committee; Mr. Cliff Argue, Vice-President for Properties and Facilities, Alaska Airlines and Chair, Anchorage-Fairbanks Airlines Airport Affairs Committee; Ron Lance, General Manager, United Airlines, Anchorage; Morton Plumb, Jr., Director, Anchorage International Airport; Kurt Parkan, Deputy Commissioner, Department of Transportation and Public Facilities; aides to committee members and other members of the Legislature. Via teleconference: Edward Merlis, Senior Vice President, Government Affairs, Air Transport Association, Washington, D.C. SUMMARY INFORMATION SB 350 ABOLISH TOURISM MARKETING COUNCIL   CSSB 350(FIN) was REPORTED out of committee with no recommendation and attached fiscal note by the Department of Commerce and Economic Development. SB 352 AIRPORT REVENUE BONDS CS SB 352(TRA) was REPORTED out of committee with no recommendation and attached previously published fiscal note by the Department of Transportation and Public Facilities.   SENATE BILL 350 "An Act relating to tourism and tourism marketing; eliminating the Alaska Tourism Marketing Council; and providing for an effective date." Co-chair Sharp noted that the committee had a new CS for the bill and asked for an explanation of differences from the previous version. JEFF BUSH, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (DCED), informed the committee that DCED had spent a significant amount of time working with the Alaska Visitor's Association (AVA); the new proposed CS was a compromise acceptable to both the state and AVA. Mr. Bush provided an overview of the legislation. The department would be appropriated money annually (as part of a contractual line-item) that would be used for the marketing program. The state, through the Division of Tourism and DCED, would put forth the items they wanted done in a tourism marketing program; a large percentage of that would be done as a large marketing program, but there would be other smaller programs, such as the Tourism North program. The state had to make an offer to the qualified trade association under the contract, if the match were met. All of the program could be done and matched, but the trade association would have the right of first refusal on all tourism-related contracts and could reject parts of the program it did not want to do (for example, not wanting to market tourism in Korea). The association could do the piece internally or find another contractor to do the work. Mr. Bush noted that on the Senate side, there had a been a request to raise the match in the bill to equal the amount put forth in the new millennium plan; the bill would raise the match requirement in the private sector to 60 percent after three years. Co-chair Sharp noted that the draft being discussed was the "L" version. Senator Pearce MOVED to ADOPT the "L" version of CSSB 350 (FIN) (\L, 5/2/98, Cook) as a working document before the committee. There being no objection, it was so ordered. BOB ENGELBRECHT, PAST PRESIDENT AND BOARD MEMBER, ALASKA VISITOR'S ASSOCIATION, testified that he did not dispute anything said so far. He concurred that meetings with the state had resulted in large areas of agreement and that the CS was a compromise bill that AVA was comfortable with. He referred to a letter from Tina Lindgren (the Executive Director of AVA) that accurately characterized the position of the association. He reported that the process of working with AVA members and others in the visitor industry had been thorough; the bill would make some changes to some basic tenants, but the compromises were reasonable. Senator Parnell queried language on page 3, line 21 regarding the right of first refusal. He questioned the time-line of the right and wondered whether an entity could essentially have it forever. Mr. Bush referred to the section before that required a contract with a qualified trade association willing to make the match, and would require the state to enter into the contract. He offered a possible scenario of when the right of first refusal might come up: Mid-contract, the Division of Tourism could decide it wanted a television ad on the Marine Highway System. The department would have to go to the qualified trade association and offer them the opportunity to produce the commercial, provided they came up with the 50 percent match. Senator Parnell clarified that the provision would not extend to the initial contract with the qualified trade association, but to the other contract. Mr. Bush responded that it would essentially extend to all contracts; the original contract could be a right of first refusal in a sense, because the department would have to go to them up- front and offer them the contract for a year. Senator Parnell asked whether the trade association would have the right of first refusal to extend the specific contract or any other tourism-related contract. Mr. Bush responded that they would not have a right of first refusal to extend the contract; if there were two qualified trade associations in a particular year, the bill would exempt the particular contract from procurement, but would not prevent the department from going through some limited solicitation process if there were two qualified trade associations at the beginning of the year. Senator Parnell asked whether the right of first refusal language was anywhere else in the bill besides page 3, lines 21 through 25. Mr. Bush responded no. Senator Parnell commented that he read the right of first refusal to extend to any other tourism-related contract. Mr. Bush agreed; given the match and money-raising requirements, he opined that it would be very difficult for another qualified trade association to come forward. Senator Torgerson pointed to page 4, line 7 and the word "if." He noted that there had been a previous concern about the association not making the [mailing] list available after the state made a substantial investment into the marketing council. In all previous drafts, there had been agreed-upon and adopted language; now it seemed there was a stipulation that if the department decided, it could let others into the market. He had a problem with the word "if" as it could leave the power to say yes or no on selling any list in control of the board of the qualified trade association. Mr. Bush answered that the language was put in by drafters trying to re-work original language adopted by the committee. The current version of the bill stipulated that the list had to be made available to every person at the same price (higher for non-participants) if the right to use a mailing list was sold. Senator Torgerson maintained that a non-member could also be told that the list was not being sold, but the list could be provided to members. He objected to the way it was written. Mr. Bush answered that the language could be corrected through an amendment. Senator Torgerson wanted more time to study the document. He noted that he had other concerns. He referred to Amendment 6 (offered by himself) that had stipulated that materials produced would be turned back to the state after the contract was over. He asked why the language was not in the version being discussed. Mr. Bush responded that the issue had been dealt with through a change made on page 4, lines 3, 4 and 5; all the materials were made joint property of the qualified trade association and the division. Co-chair Sharp pointed out that the measure had started and remained at 30 percent until three years had passed. He thought it would be difficult to create steps in the CS because of Sections 6 and 7. In response to a question regarding the intent to report the bill out of committee, Co-chair Sharp thought the bill would die if it did not move out right away. There was discussion about the need for an amendment. Mr. Bush detailed that the problem (related to the mailing lists) was with the word "sells" and that changing the language to "provides" would fix it. The language would then be "if the qualified trade association provides the right to use a mailing list generated under the contract, the list must be made available to every person at the same price." He noted that there could be a charge based upon a pro-rata percentage of the participation fee for non- members. Senator Torgerson MOVED to ADOPT conceptual Amendment 1: On page 4, line 7 Delete "sells" and insert "provides" There being no OBJECTION, Amendment 1 was adopted. Mr. Bush spoke to the fiscal note by the department, which had not been drafted or distributed. The fiscal impact was related to the fact that the state would not longer get program receipts but would contract the work out. Senator Parnell MOVED to REPORT CSSB 350(FIN) from committee with individual recommendations and the accompanying fiscal note. There being no OBJECTION, it was so ordered. CSSB 350(FIN) was REPORTED out of committee with no recommendation and attached fiscal note by the Department of Commerce and Economic Development. [There was a recess for floor session] SENATE BILL 352 "An Act relating to international airports revenue bonds; and providing for an effective date." Co-chair Sharp opened public testimony for the bill. [Brief AT EASE] LYDIA JONES, STAFF, SENATE TRANSPORTATION COMMITTEE, read the sponsor statement for SB 352: Senate Bill 352 amends the statutory bonding limit for the state of Alaska to sell international airport revenue bonds. The current limit is $100,825,000. This bill changes the limit to $280 million. The difference between the old amount and the new amount is $179.1 million, which is the amount of new debt proposed to finance passenger terminal improvements at Anchorage International Airport. This increased bonding authority is only one component of the financing for proposed airport improvements. Another component included federal highway funds for curbside improvements and a surface transportation access corridor. A third component is federal airport funding for ramp and airside improvements. The bonding cap contained in this bill is $25 million less than a similar bill introduced by the governor. This bill contemplates an additional $25 million in federal funding. Consequently, we can reduce the amount the state needs to borrow. By taking the $25 million off the table, it will not be available to expand the project. The $179 million (plus) in proposed terminal improvements represents the single largest public-works project the state has ever undertaken. The wisdom of taking on such a high amount of debt and whether the international airport revenue fund can afford the debt remains to be proven in the committee-hearing process. Several of the small air carriers have expressed concern that the proposed project is too big. They voted against it but lost. Still, their concerns may be valid and we owe it to them to make the project no more expensive than is necessary. This bill is also notable for what it does not include. It differs from the governor's bill in that it does not change the statutes to allow for undefined brokerage fees and unspecified obligations to be charged against the IARF [international airport revenue fund]. Additionally, SB 352 requires the Department of Transportation and Public Facilities to submit an advanced fiscal year spending plan to the legislature by January 1 each year of the project. Ms. Jones noted that the bill was identical to CSHB 432 (Representative Cowdrey's bill). On the House side, the bill had five hearings with over nine hours of testimony. A multitude of questions concerning plans and financing for the airport project were asked by the international trade and tourism committee; the questions were answered in writing by the Department of Transportation and Public Facilities (DOT/PF). The information was contained in several volumes that were available for the committee's review. Ms. Jones also noted that every effort had been made to make sure that many aspects of the project would be contracted to local contractors (on the record from DOT/PF). She added that 10 percent of the Anchorage workforce was airline-related; the project would add substantially to local labor. Co-chair Sharp asked the volumes of information to be available for committee members. MR. CLIFFORD ARGUE, VICE-PRESIDENT FOR PROPERTIES AND FACILITIES, ALASKA AIRLINES and CHAIR, ANCHORAGE-FAIRBANKS AIRLINES AIRPORT AFFAIRS COMMITTEE, testified in support of SB 352. He detailed that the airlines/airport committee was comprised of 25 airlines that had signed lease and operating agreements with one or both of the international airports in Anchorage and Fairbanks. He maintained that SB 352 would authorize the issuance of revenue bonds to fund the much-needed expansion of the domestic terminal at Anchorage International Airport. He focused on three areas: the process, the project, and payments. Mr. Argue began by discussing the process. In November 1997, the airlines voted, in accordance with the agreements each had executed and long-standing past practice, to approve the financing and construction of the terminal re- development project in Anchorage, with a total estimated cost of $191 million. During the voting process, DOT/PF pledged an additional $26.5 million in federal highway funds to the project, leaving a net total of $164.5 million. The vote also approved the Alaska International Airport System (AIAS) to issue airport-revenue bonds in an amount necessary to cover the new net-project cost, plus financing and escalation, with the understanding that AIAS would continue to use its best efforts to obtain alternate sources of funding and financing to reduce airline cost exposure. They hoped that there would be additional federal airport improvement program funds available. Mr. Argue reported that he had been involved in the planning and development of airport terminal facilities for some thirty years; he contended that the work done to date on the Anchorage project was among the most thorough and professional he had seen. The needs assessment, the conceptual solutions, and the financing plan were carefully developed by an expert team of airport staff and consultants. There had been excellent coordination with the airlines at every step in the process, with numerous meetings and reviews. He added that his colleagues from a number of other airlines, including Lynden, Northwest, United, Delta, Reno, America West, Federal Express, and United Parcel Service, shared the feeling about the quality of the process and supported the project. Mr. Argue informed the committee that the previous week, he had served on a panel at the annual economic conference of the Airports Council International (a large trade association of airports throughout the world) in San Francisco. The session was co-sponsored by the Air Transport Association, which was made up of the scheduled domestic airlines in the U.S. as well as some international carriers. One of the focuses was on the relationship between airlines and airports. Very difficult situations were reported, but he was pleased that he could point to the Anchorage experience as a model for good cooperation that resulted in the project eventually endorsed by the airlines. Mr. Argue continued that with respect to the Anchorage project, the serious deficiencies in the existing Anchorage domestic terminal were well known, both as documented in studies and experienced by many travelers. He stressed that the plan to remedy existing shortcomings and accommodate forecast growth between the present and the year 2005 was sound and conservative, and would provide Alaskans and visitors from outside the state with a modern, efficient, and functional airport terminal, serving the largest city and air-transportation hub of the state. The project would allow passengers flying out of Anchorage to use the newest technologies to speed progress through the terminal. He emphasized that Alaska Airlines was especially exited about the opportunity to offer better customer service as quickly as possible through a greater use of new technologies. Mr. Argue turned to his third area of focus: financing. He urged the committee to give AIAS maximum flexibility to issue the bonds necessary for the project all at one time and immediately, which he believed was the most cost- effective way to proceed, rather than trying to split it up, phase it, or otherwise delay it. The bonds would be backed by airport revenues generated from rates, fees, and charges to the airlines, concessionaires, and others benefitting from the airport. He argued that the proposed revenue bonds would in no way impact the state's general fund, nor would they harm the ability for either the Anchorage or Fairbanks airports to continue to develop other necessary capital improvements using already established funding mechanisms. Additional costs to the airlines, when considered on a cost-per-passenger basis, would be modest, and the airlines were ready to pay. He maintained that the AIAS proposal was prudent and reasonable and would fund needed improvements to one of the major economic engines of the state, and that the proposed project was small compared to what was being done throughout the rest of the country. He listed projects that were planned or underway on the West coast: · Seattle, planned at $1.7 billion · San Francisco, underway at $2.7 billion · Portland, underway at over $800 million so far Mr. Argue acknowledged that some of the projects were far more complex and expensive than the proposed Anchorage project. He urged the committee to move the project forward. He noted that Denny Bird, the general manager for Federal Express in Alaska, was unable to be at the meeting, but fully supported the project. RON LANCE, GENERAL MANAGER, UNITED AIRLINES, Anchorage, testified that in January of 1997, United Airlines had approximately 45 employees in Alaska; at the present date there were 225 employees living mostly in Anchorage. He thought the numbers represented a significant investment in the Alaskan economy and reflected United Airlines' confidence in the state's ability to support its growth. He reported that at present, operations were 25 percent passenger-related and 75 percent cargo-related. United Airlines intended to expand cargo operations in the near future; he stated that the present facilities were inadequate to support further expansion in both areas and needed to be corrected. From United Airline's perspective, it would have been helpful if the proposed Anchorage International Airport expansion plan represented in SB 352 had been passed three years prior. He reported that others would testify about the need for the facilities as well. Mr. Lance emphasized that the existing facility simply did not fit the size of passenger and cargo traffic going through the Anchorage airport. He stressed the fairness of the process by which the expansion plans were decided. He noted that United was an employee-owned airline which attempted to move policy decisions to the lowest possible level. All of the airlines involved had a chance to participate in the decision-making process as well. The Airport Affairs Technical Committee reviewed the plans and reduced them from as many as 15 concepts down to one; there was a lot of give-and-take during the process. He maintained that everyone had a say and that a compromise solution was reached that would ultimately pay for the project. He urged timely movement of the legislation and noted that more delay would result in more triple parking around gates and problems for passengers and cargo customers. Senator Parnell asked who had opposed the decision. Mr. Argue answered that several carriers voted against the project. He explained the operating agreement process for the Anchorage and Fairbanks airports: In order for a project to not pass, two-thirds of the signatories had to vote against the project; that did not happen. There were 10 votes in favor and 12 against the project. However, the positive votes for the project represented about 85 percent of the carriers operating in the domestic terminal, the terminal most heavily affected by the project. Senator Pearce asked for the names of the international carriers that voted against the project. Mr. Argue listed the negative votes: Asiana Airlines, Cathay Pacific Airlines, China Airlines, Japan Airlines, Korean Airlines, Lufthansa Airlines, and Nippon Airlines Cargo. Senator Pearce reminded the committee that the listed carriers would not get the tax. Co-chair Sharp queried the domestic carriers that voted against the project. Mr. Argue listed the domestic carriers that voted against the project: ARI (?) Aviation, Evergreen International Aviation, Northern Air Cargo, Peninsula Airways, and Reeve Aleutian Airways. He noted that Reeve Aleutian Airways had made a statement on the ballot that they would vote yes if the alternate source of funding passenger facility charges was included in the project; he noted an April 15 letter to Senator Ward stating that the carrier supported the project. Co-chair Sharp pointed to quoted amounts spent by other airports that he did not think related to Alaska because of the smaller size and the fact that most business was related to cargo. He did not want United to pull out of Alaska because of lease rates. Mr. Lance responded that landing fees and lease costs were a small part of the overall cost of doing business. Co-chair Sharp said he would ask DOT/PF about expected increases in lease rates to finance the debt. He thought some of the airports with massive improvements had lost a lot of business from smaller airlines that could not afford the increased costs. He was concerned that the carriers that voted against the project were the intra-Alaska carriers that did 90 percent of the business. He queried Reeve Aleutian Airways details. Mr. Argue responded that the carrier had changed its conditions from the first ballot mentioned to the letter to Senator Ward. Co-chair Sharp thought it was naïve to believe there would not be an increase in passenger-service charges after a quarter billion dollars worth of new financing. He was concerned that a $3.00 charge on a $30.00 trip was a lot more than a $3.00 charge on a trip to San Francisco, although Juneau had just excluded charging the fee on smaller trips. EDWARD MERLIS, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS, AIR TRANSPORT ASSOCIATION (ATA), WASHINGTON, D.C. (via teleconference), testified that ATA was the principal trade and service organization of the U.S. airline industry. Members transported more than 95 percent of passengers and cargo shipped on U.S. airlines. He stated that ATA believed that the process that had been followed at Anchorage should serve as a hallmark of what airport expansion projects in cooperation with airlines should be. Throughout the country, there were efforts by local governments and airport authorities to control the costs and scope of airport expansions. He opined that the Anchorage project was appropriately sized and priced. He reported that ATA urged the prompt passage of the legislation. [SFC-98, Tape 150, Side B] Mr. Merlis spoke to the need to cover anticipated federal costs of the Anchorage expansion program. Co-chair Sharp queried the projected curve of increase on existing fees and lease costs to finance the debt service of the proposed project. MORTON PLUMB, JR., DIRECTOR, ANCHORAGE INTERNATIONAL AIRPORT, replied that the information was contained in the two volumes provided for the committee. He referred to a handout given to committee members with a short synopsis (page 5); he did not have percentages, but had approximate numbers: the change would be $32.97 in 1999 to around $41.75 in 2010. Co-chair Sharp conjectured an increase of about 25 percent. He asked whether the plan included increases in passenger fees. Mr. Plumb responded that he was referring to passenger facility charges (PFC), which were not included in the current proposal. The plan did not address the future use of PFCs. Co-chair Sharp referred to past testimony when the idea of PFCs was discussed. He queried the annual amount of revenue that had been anticipated during the discussions. KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, replied that the Anchorage airport was anticipated to generate about $5 million annually. He recalled that there had been considerable concern expressed about PFCs. Co-chair Sharp questioned the process for instituting a PFC. Mr. Parkan responded that the process was that the airport would collect the PFCs after going through a process of identifying a project that PFCs would be used for, consulting with the carriers that would collect the fee, presenting an application to the Federal Aviation Administration (FAA), and going through a public process. Then, FAA would approve the collection of PFCs. He noted that Juneau had recently implemented a PFC program and would start collecting in July. He added that the legislature would have to approve of the collection and the expenditures of funds for the project; there would be no collection of a PFC without the legislature. Co-chair Sharp asked whether the fees would have to be appropriated by the legislature even if the fees were collected by the Anchorage International Airport or the AIAS. Mr. Parkan responded in the affirmative. Co-chair Sharp questioned the duration of the bonds. Mr. Parkan (and others) replied 25 years. Co-chair Sharp pointed out that there could be a possible cost-shift of $125 million onto passengers, with no reflection of the costs in lease payments. Mr. Parken responded that SB 352 was only the authorization for the bond. He noted that PFCs could be used to repay a portion of the debt payment. While the department had proposed $5 million through PFCs the previous year, they had since been working with the FAA to find a way of coming up with a PFC program reflecting the unique nature of Alaska; the FAA was considering exempting certain portions of the state from having to pay the PFCs, which would reduce the revenue. He did not have an estimate of what would be collected in PFCs in the future, but it would be less than the $5 million that would be collected if everybody in the state were charged. Co-chair Sharp asked whether the fees could be imposed by AIAS, with proper public notice and so on. Mr. Parken answered that the sponsor of the airport did the processing of the application. Co-chair Sharp asked whether the users would be able to vote on the issue. Mr. Parkan replied that the question would be taken to the carriers that operated at the airport for consideration. He added that interest expressed by the carriers would then be given to FAA for their consideration; FAA would ultimately approve or deny the PFC. Co-chair Sharp pointed out that the majority of the voters would be cargo people, and they would not care about passenger-service charges. He was concerned the $125 million would be shifted to the passengers if it came to a vote. Mr. Parkan responded that the operating agreement was different than the process for PFCs. He asserted that it was not a matter of a majority vote. Senator Pearce pointed out that the reason the legislature got involved in the first place was that DOT/PF had to come to them for an RPL [revised program - legislative] for additional receipt authority to be able to collect the fees. She stressed that the legislature would have a role to play because without receipt authority, the PFCs could not be charged. Mr. Parkan noted that a considerable number of the passenger carriers supportted the concept of PFCs. Co-chair Sharp observed that the smaller passenger carriers did not. Mr. Parkan noted that Reeve was willing to collect for Alaska. He acknowledged that the response was mixed. Co-chair Sharp pointed out that there were $25,150,000 of current capital projects in the capital budget, excluding the Anchorage airport project. [AT EASE] Co-chair Sharp queried the current Statewide Transportation Improvement Programs (STIP) out to 2001 related to airport improvements. Mr. Parkan responded that there was a portion in the STIP that was a little over $26 million. Co-chair Sharp relayed that his main concern related to tearing down the existing ramps and replacing the ramping; he asked whether that was still in the STIP. Mr. Parken answered that there was a portion still in the STIP and the department would be requesting authorization in the coming year for a piece of that. He that the Intermodal Surface Transportation Efficiency Act (ISTEA) was promoted; the International Airport Road going up to the terminal was part of the national highway system (NHS) and qualified for federal highway funding. Co-chair Sharp questioned the total NHS allocation for the ISTEA. Mr. Parkan responded that there would only be partial funding for the current year, but the normal amount was over $200 million. The new authorization was expected to be around $300 million. Co-chair Sharp indicated that the version before the committee was the Senate Transportation Committee's version of HB 352, which called for an increase in authority of $179 million. Senator Donley MOVED to REPORT CSSB 352(TRA) out of committee with individual recommendations and any accompanying fiscal notes. Co-chair Sharp OBJECTED. A roll call was taken on the motion: IN FAVOR: Parnell, Phillips, Donley, Pearce OPPOSED: Sharp Senators Adams and Torgerson were absent from the vote. The MOTION PASSED (4/1). Senator Donley stated for the record that he shared Co-chair Sharp's concerns about the structure of the STIP and inclusion of the ramp project in the STIP. He believed the administration should be on notice that the item might not be approved by the legislature, as it should be an airport cost. Co-chair Sharp referred to a meeting in December 1997 with the airport personnel and DOT/PF. He had asked how many other airport authorities used ISTEA money to get up the front door on ramping and parking access. The response had been one, at Dulles International Airport outside of Washington, D.C. He reiterated concerns. CS SB 352(TRA) was REPORTED out of committee with no recommendation and attached previously published fiscal note by the Department of Transportation and Public Facilities. ADJOURNMENT  Co-chair Sharp adjourned the meeting at 12:17 p.m.