GENERAL SUBJECT(S): OVERVIEW: Alaska Railroad by Governor Bill Sheffield The following overview was taken in log note format. Tapes and handouts will be on file with the Senate Finance Committee through the 21st Legislative Session, contact 465-2618. After the 21st Legislative session they will be available through the Legislative Library at 465-3808. Time Meeting Convened: 9:10 A.M. Tape(s): SFC-99 #27, Side A (000 - 587) Side B (587 - ) PRESENT: x Senator Parnell x Senator Adams x Senator Torgerson x Senator P. Kelly Senator Donley x Senator Green x Senator Leman x Senator Phillips x Senator Wilken ALSO PRESENT: GOV. BILL SHEFFIELD; JOHN BINKLEY, CHAIRMAN, ALAKSA RAILROAD; LOG SPEAKER DISCUSSION 000 JOHN BINKLEY Chairman of the Board for Alaska Railroad was invited to join the committee. He noted this was becoming an annual event and was important to have a dialogue with the Senate Finance Committee. 044 Introduced Governor Sheffield to make actual presentation. (President and CEO) Most people know the Governor because of his political career. Owned and operated large hotel chain in the State. Has excellent understanding of the political scene, which helps balance with the Alaska Railroad. 069 GOVERNOR SHEFFIELD Was invited to join the committee. He referrerd to the colored handout by the railroad. The Alaska Railroad is a public corporation. The railroad has many 30-year employees. He felt they had an excellent team. They are audited every year by one of the largest companies; also a performance audit. 110 Briefly explained performance and operating audit. Expects that 1999 and 2000 will be a little tougher due to oil company layoffs and less freight. Anticipates a downward trend in freight hauling as of this year. Barges are presently full coming out of Washington State. Have done homework and able to deal with blips of the economy. $140 million has been put into improvements. There is an aggressive maintenance program to help them stay efficient. 1998 highlights: safety is number one concern. 23% reduction in employee injuries. Heavy freight coming south. Reinforced ties and put in extra ballast. $30 - $40 million into maintenance. Replaced 100,000 more ties. Increased passengers and freight reveues with an estimated net earning of $9 million. Goals for 1999 another 25% drop in injuries, cut expenses to meet potential drops in freight volumes, increase and diversify passenger business. Smooth out ups and downs in real estate master plan. Explained real estate plan which will bring in more revenue for the railroad. 219 Transportation is fifth in the national economy. It is an ambitious program, especially in Alaska. Will be a lot of money cominginto the state for transportation. New locomotives, new depots, track straightening, airport terminal design, roadbed maintenance all included in the 1999 - 2000 capital plan. $75 million in railroad revenues and Federal funds will be used. No State funds or taxes will be used. 250 Explained projects in Seward and Whittier. Seward will have a new port to accommodate passengers and the State ferry dock. Will share in revenues of projects in Whittier in about five to seven years. Pedestrian overpass from depot to main part of town (Whittier). 267 Safety issue for the city of Whittier. He explained changes in the Denali depot and more changes in the park. Have been working with the Parks service. Bigger, longer depot which will accommodate longer trains from 17 cars to 25 cars. Fairbanks has new intermodal facility, depot, bus parking. It will be a more efficient facility. Getting close to beginning work on this project. This will help railroad service. 295 Motive power: Ready to receive new locomotives. Will take delivery of 16 new ones between this past November to April. Will have more power. Will start to see some savings. Have paid half cash out of their own earnings. 309 The new locomotives have better fuel efficiency, cleaner air, are equipped with GPS and computer dispatching. Anchorage International Airport is their centerpiece. It will allow them to move passengers from Seward and Whittier into the airport facility. Anchorage will have new depot to handle the tourists from the cruise ships. Can provide commuter service from Palmer and Wasilla. There will be considerable construction on tunnel and elevator tracks; escalators that will go into a moving sidewalk. This will be a beautiful addition to the Anchorage Airport. Train station will be on top. Within three to four years will be able to move lots of people. Will cut running time from Wasilla by 17 minutes. Help freight and passenger service. Crews only work 12-hour shifts. 366 Helping to make the railroad better. Hopes to go into Canada. Refers to 1977 study 268 miles from Ft. Rich to Fort St. John. Railroad from Chitna. Missile site in Delta/Ft. Greely will expand the railroad spur into that area to deliver missiles. Gold mine and Pogo Mine will also require spur. Plates to eat from for the next couple of years. 405 Future bright for the State and the Alaska Railroad. 407 SENATOR LEMAN Asked about real estate operations? How much revenue secured? GOV. SHEFFIELD Transportation services and railroad brought money to the State last year and will continue. More income from real estate also. Transportation doing more business and bringing more money; has taken over from real estate, about 60% - 40%. SENATOR LEMAN Asked about Federal funds and how much from railroad operations? GOV. SHEFFIELD Refers to normal capital budget. About $15 million/year into the capital budget. Some back into maintenance. Last few years $10 million from Federal government going into road bed, new switches, new safeguarding controls, ties and ballast. Couple of years ago was about even 50 - 50. Are getting more Federal dollars now. Taking part into TEA-21. All money in the bank for the railroad system. (9:40 a.m. Senator Donley arrived.) SENATOR LEMAN GOV. SHEFFIELD Monies for Federal match come from railroad funds. SENATOR WILKEN 1987 - 1988 railroad vs real estate operations. Asks freight increase or decrease for 1999; also passenger projections. GOV. SHEFFIELD Looking at about a 20% increase in passenger services revenue for 1999. Increase in freight at about the same. Some things hinge on this, however. MAPCO project will start in April. Market was not available in November. Could however start as early as March. Inline freight may be down this year, but do not know how much at this time. Keeping constant vigil. Covered with potential budget cuts. Last year only hauled 290,000 tons of coal; should have delivered up to 800,000 tons. Re: Lack of coal. Newspapers report railroad has coal contract, however at this point they do not. Hauling Healy to Seward. They are at about half of previous years. 486 No coal hauled from Seward since November. Ship is now on its way into Seward. May haul about 700,000 tons this year. May be lower hauling price in 1999 than in 1998. Does not want to lose coal contract because they will not be able to get it back. Can use small margin of profit for track repair. Usibelli Mine.agrees they need to keep the coal contract. Will keep this contract as long as they can. Hopes to sign contract by next week. JOHN BINKLEY Monthly financials; management come-back each quarter with revised budgets. Dynamic business and markets changing all the time. Do not want to be surprised with any changes. Therefore do adjustments each quarter. SENATOR WILKEN Railroad doing all to keep contract in coal? GOV. SHEFFIELD Yes. SENATOR WILKEN Explains his wharehouse in Fairbanks center. Obtained in 1980. Under new management of the railroad now doing better. Yard cleaner, more organized, relationship with railroad and tenants greatly improved. Glad to see expansion plans. Wanted to report this to the committee. SENATOR PHILLIPS What happens to old locomotives being replaced? GOV. SHEFFIELD Will lease out locomotives in lower '48. Passenger service out of Anchorage going south will still use old locomotives. Phasing out old and bringing in new. SENATOR PHILLIPS What about Y2K? GOV. SHEFFIELD Wayne Wiley in charge of computers and has been involved in the Y2K. Are doing everything they can do. JOHN BINKLEY Testing vendors; this is concern. Thought they were compliant but found they were not. SENATOR PHILLIPS Refers to Kennicott and it not being compliant but they did not know until after the ferry came on line. GOV. SHEFFIELD Alaska Railroad only railroad in U.S. with GPS system and fully computer dispatched. JOHN BINKLEY Each locomotive will transmit exact location of equipment. GOV. SHEFFIELD Waiting for completion of study regarding GPS system. (Tape #27 switch to side B at log 587, 9:55 a.m.) CO-CHAIR TORGERSON Auditor recommends passing. GOV. SHEFFIELD Has spoken with auditors. Has flexibility to run business freehanded at this moment. Do come under the State's ethics laws and State's procurement laws. Legislative Budget and Audit; their own checks and balances. However, if they come under Executive Budget Act would not have this flexibility. Worked a long time on a scheme with ARCO hauling scrap out of Fairbanks. Haul pipe on gondola cars to Fairbanks and then scrap out. Had to spend nearly a million dollars to purchase special forklift to lift pipe off cars on to the ground and then on to high boys for transport to Prudhoe Bay. If they did not have this flexibility to purchase the equipment necessary could not have done this project. Could not enter into contracts. Special benefits to Fairbanks. Could not borrow money from bank. Has elaborate line item budget system. Keep trying to improve this system. 543 Want to be different than they used to be. Are open to anything the Legislature wants to know. All you have to do is ask. Earnings are going to decline. Increase in revenues will come from efficiencies. Will have better railroad in future. CO-CHAIR TORGERSON Refers to the budget document. Especially cash settlements. Railroad appeared to rely heavily on "buying their way out of trouble". This is a bad precedent. Assumed railroad has deep pockets. Urges railroad to be aware of precedent they may be setting. GOV. SHEFFIELD LB&A report also gave them some praise as to doing things differently today as compared to previously. Refers to Ship Creek. Lease was up. Did not renew or extend lease. Nothing happened over five years. Lots of negotiations, some face to face meetings. Some here and some in Detroit. They sued him. Make some decisions and some things do not always turn out. However, decision at time was made in good faith. Sued him to get off property. Got outside attorney to help them. Made the decision to pay $250,000 to be rid of lease rather than go into Court and time-consuming lawsuit. Now have master plan for Ship Creek. There are people wanting to come in and operate under this new master plan who are really interested. In five to seven years will also see Ship Creek developed and in full operation. If had gone to court this would not have happened. There are other cases. Early retirements were expensive. Made changes in resources. Bob Hatfield retired. Rules and regulations were changed at that time. Do not have them anymore on their books that they would be obligated to. JOHN BINKLEY "There is no parachute on the Governor's back." GOV. SHEFFIELD Earnings are rather fragile. Trying to make them less fragile at this time. 470 SENATOR LEMAN Relationship with Ft. Rich and Elmendorf? GOV. SHEFFIELD Will always have to operate railroad. Have been working with them. Have helped with signs on Government Hill. Government Hill council comes to their board meetings. SENATOR LEMAN How are you doing with the moose? GOV. SHEFFIELD Doing well. Haven't hit high water mark of years ago. Communities have also helped out. Not been as much snow as in recent years. Do not want to hit moose anymore than anyone else. Delays trains for about 3 - 4 hours. However, they just won't move off the track. Doesn't know what the count is this year, but it is less than 100. 438 SENATOR DONLEY Mitigation in increase in railroad transportation and undertaking on "C" street? GOV SHEFFIELD Explains phase; Tudor into international airport. Next year will provide overpass from "C" street. SENATOR DONLEY Which one goes over? Railroad goes over via build-up. Does not know much about the design. However, traffic will allow for overpass. SENATOR DONLEY Asked if was possible to work with Department of Transportation on the new east-west corridor? GOV. SHEFFIELD Have discussed this with Department of Transportation and are working closely for this corridor. Tom Brooks specifically working on this project with DOT. About 4 trains a day and will save on traffic. SENATOR DONLEY Monies from AMATS? (pause for laughter) CO-CHAIR TORGERSON Thanks Gov. Sheffield for coming in and gave good overview. GOV SHEFFIELD Appreciates question and time spent before the committee. CO-CHAIR TORGERSON Took a brief recess to get ready for bill hearing. SENATE FINANCE COMMITTEE LOG NOTES 02/15/99 SFC-99 -1- 2/11/99